- Rapport Financial is now offering Fixed Fee Financial Planning Packages. Don’t have 250k to invest? Not to worry, we can still work together. Contact me to learn more.
- Are you using Betterment, Wealthfront, or another Robo Advisory service? Do you fully understand how these strategies work? The pros and cons? I’ll fill you in on something they don’t want you to know.
One of my mentors once told me something that has stuck throughout my career:
“Price is only a major factor in the absence of value.”
I begin with this quote for a reason. Over the past few years, Robo Advisors have grown in popularity. I often come across them when advising my peers and providing holistic financial planning services.
In order to better understand the appeal of Robo Advisors, I began asking my peers why they went with a Robo Advisor instead of a DIY solution, or a human advisor. Overwhelmingly the response was “low fees.” But as I prodded further it became evident that the majority couldn’t explain why beyond this low fee benefit.
So allow me to share the pros and cons of a Robo Advisor as objectively as I possibly can, because as a consumer you should have an understanding of the services that manage your hard-earned money.
- Low Fees and Minimums.
- User-Friendly Experience.
- Automated Asset Management and Rebalancing. This is the most valuable ongoing feature a Robo Advisory service provides. The algorithm is designed to bring your portfolio back to its original allocation (plan) so you’re not taking on more risk than you can handle. And you get an efficient portfolio built for you without having to concern yourself with choosing the investments.
- Tax Loss Harvesting. This is actually both a pro and a con. The pro is that they can proactively take losses to offset gains in your taxable account. However, this is where things get interesting. This automated tax loss harvesting feature possess risks and may not be as valuable as they claim. The drawback here is that the automated tax loss harvesting exposes you to wash sales that wipe away the benefits of tax loss harvesting.
- Privacy. Read the terms of service! Wealthfront and Betterment will call you when your accounts exceed a certain asset level (typically 100k) and pitch you on premium service offerings that come with higher fees.
- They’re Not Financial Planners. A good financial planner goes beyond portfolio construction and tax loss harvesting. They get to know you personally, provide a full suite of advisory services to address your entire financial picture whether its retirement, stock options, college savings, and more. (See image below: A Hierarchy of Advisor Value).
- They Falsely Bash Human Advisor Fee Schedules. Not all advisors charge 1 %. Some firms offer hourly, others offer fixed fee arrangements.
- No Personalization or Face to Face Meetings. You work incredibly hard to earn and save. Your personal finances shouldn’t be fully automated because your life isn’t fully automated–at least I hope not! When circumstances change, you’ll benefit from an advisor to consult with during times of transition or uncertainty.
Finally, if you happen to use Wealthfront or Betterment, remember that they fill one gap: asset management via an automated service. Which has worked during a bull market like the one we’ve been in for nearly 10 years. But Robo Advisors emerged after the financial crisis and had yet to experience significant corrections and market volatility until this year.
What happened to the Robo Advisors when volatility finally returned? Crashing websites. Customers unable to log in to their accounts.
For more information on my services, and to book a 15 minute free consultation visit my calendar.
Aaron L. Hattenbach, AIF®
The opinions expressed herein are those of Rapport Financial, LLC (RF) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. Consider the investment objectives, risks and expenses before investing. You should not consider the information in this letter as a recommendation to buy or sell any particular security and should not be considered as investment advice of any kind. You should not assume that any of the securities discussed in this report are or will be profitable, or that recommendations we make in the future will be profitable or equal the performance of the securities listed in this newsletter. These securities may not be in an account’s portfolio by the time this report is received, or may have been repurchased for an account’s portfolio. These securities do not represent an entire account’s portfolio and may represent only a small percentage of the account’s portfolio. partners, employees or their family members may have a position in securities mentioned herein. Rapport Financial was established in 2017 and is registered under the Investment Advisors Act of 1940. Additional information about RF can be found in our Form ADV.