Holistic Financial Planning
Vs. Robo Advisors
The concept of financial planning is simple: provide guidance with regards to the different financial conditions and goals of your life. Financial planning is based on the assumption that these different financial conditions are interrelated … your financial goals depend on your present circumstances and what those circumstances will be in the future. Holistic financial planning works by optimizing your wealth and tracking the progress of your financial goals. There are three main categories of life goals: financial goals, physical goals, and intellectual goals. <br>
Financial goals usually involve saving money, managing debt, and planning for retirement by constructing a proper asset allocation. In general, financial advice can be divided into two broad categories:
A. Saving money – This involves getting a handle on your finances, calculating your net worth, and improving your budgeting skills.
B. Investing money – This involves making the best investment decisions that are in line with your risk tolerance and investment goals.
Physical goals are concerned with improving your health and quality of life. This covers everything from improving your diet to losing weight to becoming more physically active. <br>
Keep Calm and Carry On
Financial planning has largely become a hidden profession. Take a customer into a stockbroker's office, and you'll see them scribbling on pieces of graph paper, talking financial gutter talk with a client, and plugging numbers into calculator displays. Yet the tools still look the same.
Robo advisors are designed to make financial planning more accessible, but they fail to provide what consumers need. "The problem is that fragmentation in the industry is a feature, not a bug," says Brad Klontz, a clinical psychologist and certified financial planner. "It's human nature, and it's led to consumers getting the shaft for a long time."
The old ways of investing can be intimidating and opaque to the average investor. Robo advisors, by their very nature, try to make it easier, but technology can't fix the flaws in the current system.
Are Robo Advisor Algorithms Right for the Future?
Robo Advisor is a general term for online advice that is automatically recommended through algorithms on an online financial platform. The goal of these platforms is to automate the robo algorithmic advice process so that investors never have to worry about manually adapting their portfolio to meet the changing needs of their financial position. The lower middle class investor and trend setting millennial investors have begun reaching for the ease of Robo Advisors to handle their basic financial planning needs, or at least consider it for future planning.
However, robo advisors can never replace traditional financial planners due to the inability of the platform to offer human guidance through the most challenging financial decisions that a person faces in their lifetime.
For instance, in a recent interview, Nerd Wallet founder Mike Chen, highlighted that changing jobs was one of the most difficult transitions of his life. During the interview, Chen explained that “it took a few years for him to land a job at Redfin.” He went on to admit he was very fortunate to find that job, but also told the story of how difficult it was to develop the right resume, interview skills, and negotiate the price of his new salary.