True artificial intelligence is still an elusive goal for the scientists who have been working in this field for decades. But that hasn’t stopped a number of large online brokerage companies, which are selling the idea of letting so-called “robo-advisers” direct people’s investments.
 
I get asked about this a lot. People wonder if the rise of these automated asset-management programs will have any bearing on what we do at Old North State Trust. My simple answer is: No. I don’t expect the robots to put us out of business any time soon.
 
Using an automated asset-management system may have appeal to some people. By trusting software to make the best decisions about their family’s financial futures, they can save some money in the short run.
 
The theory is that sophisticated programs can use answers plugged into an online questionnaire to allocate individuals’ investment assets. In theory anyway, these investments best suit the customers’ needs and wishes. These programs have similarities to how search engines can make predictions, and offer recommendations, based on an individual’s habits online.
 
But safeguarding your family’s long-term security, including your plans for children’s education, your retirement and what you want to pass on to your heirs, is different from getting advice on the best place for Thai food or suggestions about what movies you might want to rent. Some things computers do pretty well these days. But estate planning and investing? That’s a different story.
 
As one client commented to me recently, “I'm not an algorithm. I'm a human being with unique needs.”
 
At our company, our clients have let us know that while they pay attention to the fees they pay, they value the service we give them in return. In fact, I have never had a client complain about our fees, because they have learned that they get far more value than the dollars they pay.
 
The real difference, to me, is that no robo-analyst can truly understand what makes each client’s situation unique. One company urges prospective clients to rely on its “recommendation engine” for investment advice. Clients can get their money invested and their portfolios set up automatically, “untouched by human hands,” as the old marketing slogan said. The advantage of the lower rates? The customer never has to talk to a person. The disadvantage? The customer never gets to talk to a person.
 
It’s cheaper than getting a human expert’s advice. But where is the customer service?
 
The robots can’t do estate planning, financial planning or retirement planning. They won’t hold the client’s hand (and sometimes I have literally done this!) and guide them through rough times. Sometimes the markets get scary; sometimes family situations are stressful and demand expert, caring advice.
 
Even when it comes to making investment decisions, automated algorithms have weaknesses. Critics have pointed out, for example, that robo-advisers make the mistake of assuming that a few years of past experience can predict future results. We human advisers, who have been through more than one up-and-down market cycle, have a different perspective.
 
A robo-adviser’s questionnaire will ask about your tolerance for risk, or about your investment horizon. But the computer will consider your answers as nothing more than numbers to calculate, without having any understanding of the specific hopes, fears and family circumstances that lie behind those answers.
 
One other consideration, of course, is that these automated investing systems are so new that they have only a very short track record. These robotic advisers have not stood the test of time, or been through a major market downturn like what happened in 2008 and 2009. It’s easy to look like an investing genius when the markets are rising. Coping with turbulent financial times is a much more challenging task, one that the robo-advisers have not yet had the opportunity to do.
 
These are some of the reasons I don’t think there is any contest between us and a robo-adviser. For me, the difference boils down to the client experience. Dealing with experienced, caring individuals is so much better for the client. And when we go beyond the investment piece, it truly requires human intelligence to do thoughtful, nuanced long-term planning that reflects the client’s needs.
 
Old North State Trust, LLC (ONST) periodically produces publications as a service to clients and friends. The information contained in these publications is intended to provide general information about issues related to trust, investment and estate related topics. Readers should be aware that the facts may vary depending upon individual circumstances. The information contained in these publications is intended solely for informational purposes, is proprietary to ONST and is not guaranteed to be accurate, complete or timely.
 
Susan Willett is the director of trust services and oversees all aspects of trust administration for Old North State Trust, LLC. Old North State Trust, a North Carolina chartered trust company, provides: asset management services; income, estate and trust tax consulting; retirement planning and administration; and trustee and estate services to both individuals and businesses. Old North State Trust professionals have many years of experience and for over a decade have assisted clients in identifying and reaching their financial goals. For more information, visit www.oldnorthstatetrust.com or call 1-800-679-3996.