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The power of the advisor relationship

Date posted:  11/10/15 08:45:00 AM Robo advisors and personal advisors are both options for investors, but each has risks and benefits.

The Internet has developed into a valuable resource that can be used for nearly any task. In fact, even online investment tools are available to individuals looking for another way to manage their financial portfolio. 

However, while shopping or researching investment opportunities online may be a convenient solution, it's important to carefully consider whether using an online investment tool is the best option for you. 

Available tools 
One of the first steps investors can take to determine whether an online tool is the right choice is to become familiar with the current options available on the market. According to an article by Rob Berger, a Forbes contributor, some available investment tools include: 

  • Morningstar 
  • Google Finance
  • Personal Capital 
  • SigFig

The structure and organization of these tools help individuals track and visualize their investments. 

"Experiencing human interaction is important to many individuals when it comes to managing their portfolio."

Understanding reality 
An online investment tool does serve valuable functions through its wide availability and ease of access; however, it doesn't replace the relationship investors can build with a professional financial advisor. 

According to The Wall Street Journal, experiencing human interaction is important to many individuals when it comes to managing their portfolio.  

"I think the tech tools may be more effective in managing money, if they're programmed correctly, but that humans will be better at keeping people comfortable with what is going on when things are bad," says Michal Ann Strahilevitz, a professor of marketing at Golden Gate University, according to The Journal. "Reassurance is hard to get from a robot or computer. People still like the human touch."

In addition, a survey completed by Hartford Funds indicated more customers value a good relationship with their advisor over financial performance. 

"The emotional relationship between advisers and clients has never been more important than it is today. We live in a time when information is at consumers' fingertips and it is the job of the adviser to quiet the noise," said John Diehl, senior vice president of strategic markets at Hartford Funds. "Advisers should not only be expected to deliver on quantitative performance, but also take a human-centric approach to advice by offering holistic financial counsel based on clients' individual goals and needs."

Consider current assets 
Individuals should consider their assets when deciding whether to seek the assistance of a professional advisor or use an online investment tool. For those with substantial assets, working with a a knowledgeable, experienced person is especially valuable. 

With a robo advisor, investors do not receive as much guidance and may miss the personal touch that comes with developing a strong working relationship with the person who is managing their portfolio. However, the benefit of using an online tool is the reduced comparative cost associated with the service. Robo advisors typically cost significantly less than an investment professional, but the expertise and communication investors receive from a human advisor relationship is lacking. 

Some factors not considered 
With an online tool, certain critical considerations may not be factored into the final portfolio recommendations, nor is the tool typically equipped to account for changes over time. For example, future life goals, charitable intentions and risk tolerance are a few elements that professional advisors are sure to take into account over the life of a client relationship, but those elements may be missed by a robo advisor. 

"With a robo advisor, individuals do not receive as much guidance."

Considering hybrid 
In some instances, it might be worthwhile for individuals to manage portfolios with the assistance of both resources, according to The Journal. 

"The goal is interdependence," said Robert Laura, co-founder of Synergos Financial Group. "Too often, people overrely on advisers, or try to do it all themselves. We think the middle ground is the most fertile."

No matter the decision, before you choose one over the other, understand the options and weigh the pros and cons.