You Can’t ‘Robo’ True Financial Advice

Originally published CNBCThe investing world is a better place, thanks to the advent of well-funded online investment advisory services.

Collectively dubbed “robo-advisors,” companies such as Betterment, Personal Capital and Wealthfront have managed in just a few years to do what the financial industry has failed to accomplish during a couple of centuries: provide quality investment guidance at a cost accessible to most demographics. It is a long time coming.

Adam Nash, Wealthfront’s chief executive, however, isn’t fond of the robo-advisor label.

robo advisor

“It is being popularized largely by the traditional advisory community to stigmatize new, potentially threatening entrants into the space who utilize innovative technology,” Nash said. “One hundred percent of all Wealthfront employees are human.”

I don’t doubt that he is correct in his belief that the “traditional advisory community,” including the financial media that serve it, have helped cast an impersonal hue on the new service, perhaps as part of an effort to diminish its perceivable benefit.

The financial industry has a long and consistent track record of putting profit over people. In recent years, it has raised, not lowered, its minimum fees and asset thresholds.

The industry has helped create the current advice shortage, and maybe it should be grateful to robo-advisors for picking up the slack.

I, too, find that the biggest problem with robo-advisor offerings is their moniker. But rather than take issue with the term “robo,” I struggle more with inclusion of the word “advisor.”

“Advisor” has a certain connotation attached to it, a relational implication that requires elements of personal discovery, history, interaction, storytelling, reflection, clarification, counsel and, most importantly, trust.

It is hard to trust an algorithm, even if it is an algorithm with a fantastic website and a customer service number.

Although adopting largely passive, index-based portfolios may benefit investors by decreasing the cost of investing and more broadly diversifying their holdings, robo-advising does little to address the bigger problem: Investors do a poor job of sticking with their investments.

That is according to market research firm Dalbar and its 20 years of Quantitative Analysis of Investor Behavior studies, though I prefer the less scientifically accurate “behavior gap” illustration from Carl Richards, a certified financial planner and the director of investor education for the BAM Alliance, a community of more than 130 independent wealth management firms throughout the U.S.

Although I am all for better investing mechanisms for more people, it seems that we are in greater need of enhanced behavior management. Technology might aid us in pursuit of that behavior management, but it will never supplant relationships as the optimal construct.

Well-tempered, well-timed and educated accountability is where a genuine advisor can help, but that is really just the beginning.

When we apply the adjective “financial” to the word “advisor,” the gap between “robo” and “real” widens even further.

Of the six modules of the certified financial planner curriculum, only one is dedicated to investing. Indeed, a comprehensive financial or wealth advisor should be able to assist a client in everything from choosing the right auto insurance deductible and determining the deductibility of auto expenses to career and estate planning.

Some of the most challenging decisions for any investor fall into the retirement-planning category.

Like the online financial calculators that have been around for more than a decade, a robo-advisor may help an individual determine how much to put away to reach a hypothetical goal in a modeled future. But they will help less in determining exactly what vehicle should be used to invest those retirement savings.

Should an individual go with a 401(k) plan? A traditional or Roth individual retirement account?

A robo-advisor is unlikely to ask why a person is planning to retire in the first place or help weigh the prospect of a second career.

How about determining the optimal way to use Social Security during retirement? Or estimating current expenses and projecting those into the coming years? Examining the tax impact of prospective relocation? Choosing to take a lump sum versus an annuity from a corporate pension? Annuitizing a portion of retirement income now or in the future? Developing an allocation designed to withstand both market forces and required minimum distributions? Determining beneficiaries for retirement plans that sync with the estate plan?

You can’t “robo” retirement.

Some of the most important financial decisions simply require real, live advice.

This isn’t an indictment of robo-advisors but of anyone, whether they sit behind a monitor or at the boardroom table, who is passing off mere asset allocation as comprehensive financial advice, financial planning or wealth management.

These services require educated, credentialed, experienced advisors acting as fiduciaries on behalf of clients and actively engaged in a relationship with them.

The entry of robo-advisors into the marketplace is a good thing, at least insofar as it helps consumers who previously had no access to investment guidance build a better investing mechanism and thus a better future.

And while I don’t see their services as competing with comprehensive wealth management, the attention that robo-advisors have received should encourage “traditional” advisors to ensure that their service offering is commensurate with their fees.

I’m a speaker, author, wealth advisor and director of personal finance for Buckingham and theBAM Alliance. Connect with me onTwitter, Google+, and click HERE to receive my weekly post via email.

The Disciplined Investor’s Worst Enemy: Tracking Error

Originally in ForbesLast year was a tough one for disciplined investors. Disciplined investors know that diversification is a key element of successful portfolio management. But investors who stayed the course and remained diversified were punished for it in 2014, at least in the short term.

Disciplined investors will continue to be taunted over the coming weeks and months by headlines touting the success of “the market” in 2014. “Which market is that?” many of them will ask.

Head in Hands

Well, “the market” we hear about most often is the Dow Jones Industrial Average, which represents only 30 of the largest U.S. companies trading on the New York Stock Exchange. A slightly broader barometer of “the market” is the S&P 500 index, a benchmark tracking 500 of the largest U.S. stocks. In this case, “the market” could more accurately be translated as “the U.S. large-cap stock market.”

2014 Asset Quilt

What is “the market”?  It’s actually a host of different markets in reality.  Pundits may entertain us with their prognostications, but one glance at this asset class quilt makes it abundantly clear that attempts to pick the next winner are in vain–or worse yet, counterproductive.

Stressed-Out Gen X and the Search for a More ‘Livable’ Life

Originally published CNBC“We’re just overwhelmed with life.” That was my response to an attorney looking for insight into the obstacles facing Generation X.

I’d referred a number of 30- and 40-something financial-planning clients to this attorney. All were in need of estate-planning documents.

But he came to me concerned about the difficulty he was having in reconnecting with clients who’d begun the process but were struggling to find the time to complete it. The time to complete anything, really.

gen x stress

While folks of all generations struggle with being overwhelmed by the various responsibilities and obligations of life, I see the problem as endemic within the ranks of Gen X, my peers.

My Top 5 Christmas Albums

My family celebrates Christmas, and music has always been a big part of the holiday for us. So I thought I’d offer up my top five favorite Christmas albums:


How to Protect Your Biggest Asset–Your Income

Originally published CNBCYou’ve got a machine just sitting around your house. It’s a money-printing machine, and it’s perfectly legal. This machine is expected to print $75,000 this year before taxes. You’ll use that cash to pay your household expenses.

Each year, the machine will print 3 percent more than it did in the previous year, and it will continue doing so for the next 40. That means, over its lifetime the machine will print $5,655,094.48, easily making it your most valuable asset today.

Yet there it sits, maybe in your garage, between an inherited set of golf clubs and a wheelbarrow with a flat tire, unprotected. Uninsured.


The machine, of course, is you, or more specifically, your ability to generate an income. It didn’t come cheap. You and your parents invested years of training and likely tens of thousands of dollars in hopes that your machine would not only support you financially for a lifetime but launch another generation as well.

We don’t question the need to buy insurance for the things our money machine purchases. But few of us know if—or at least how and to what degree—their income-generation engine is protected.

Do you?

The Guide to Happy Giving

Originally in ForbesGiving Tuesday might officially be behind us, but let’s face it—we’re just getting started. The giving season is underway, with the holidays and year-end bearing down on us. So how can we transform one of the more stressful, and sometimes guilt-ridden, elements of the season into something more life-giving?


Whether you’re giving to a family member, a friend or a cause, please consider the following four directives as a guide to happy giving:

1)   Give out of impulsion, not compulsion. Compulsion to give can arise from the mountain of expectations, perceived or otherwise, heaped upon us at this time of year. (Those expectations are more often self-imposed, by the way.) Impulsion, on the other hand, comes from within. Give because you want to, not because you have to. And don’t give if you don’t want to. 

Business Travelers – Skip In-Flight Wi-Fi To Increase Productivity And Save Money

Originally in ForbesI travel a decent amount. I don’t mind flying, but I’ve always struggled with the loss of productivity. Hours waiting at the airport. Even more hours in flight. But with the advent of in-flight Wi-Fi, I thought my productivity problems were solved. I was wrong.

I’ve instead concluded that by nixing slow and unpredictable in-flight Wi-Fi altogether, we can save money and use flight time to more productive ends (like reading, writing and resting) better suited for that environment.

My initial plan was to use in-flight Wi-Fi to slay the email dragon. That way, I could land knowing that nothing had slipped through the cracks and that there were no surprises waiting. I might even allow non-urgent emails to pile up for a couple days if I knew I had an upcoming flight. Unfortunately, the strategy was a miserable failure.


A 4-Step Process to Integrating Money and Life

Originally in ForbesOnce you’ve abandoned the pursuit of balancing money and life in favor of integrating the two, the question still remains: Now what? How the heck do I better integrate money and life? Like most personal finance dilemmas, the answer is simple, but not easy.

It’s simple because it doesn’t require many steps. What’s more, it’s advice you’ve likely heard before, perhaps multiple times. But it’s challenging because you have to do some work—interior work. And then you have to make some difficult decisions.

money&life integration

Before I share the process, it’s imperative that we recognize a fundamental financial truth, often shrouded in a sea of marketing, misinformation and self-help rubbish that’s more sales than psychology.

RULE: Money is a means, not an end. Money is a tool—a neutral tool that is neither good nor evil. It may, however, be used in pursuit of either good or evil, and everything in between. Money can be well-utilized in the pursuit of goals, but it makes a very poor, lonely goal in and of itself.

Understanding—and believing and applying—this rule is the aim of the following systematic four-step approach to better integrating life and money:

Don’t Balance Money And Life, Integrate Them

Originally in ForbesWe got the subtitle of my last book wrong. It reads, “Balancing Money and Life.” And while the book is still substantively solid and its aging content remains mostly relevant, the subtitle, I now believe, is a misnomer. It may actually contradict the book’s fundamental message.

Whether we’re talking about money and life, work and life—whatever and life—the temptation is to see the “whatever” as a force standing in opposition to life. An alternative to life.

And, unfortunately, this isn’t merely a rhetorical conundrum. As it often does, life follows language. Indeed, the phrase “work-life balance” has become so common that most of us now consider it an either-or proposition. We picture a scale, balancing work on one side and life on the other, as though it’s a zero-sum game. Work or life.

And so it has become with money. We can choose to expend life in pursuit of money or deplete our financial resources in pursuit of life.


Perhaps there’s a third option—the integration of money and life. Consider these seven ways we might view life and money differently if our approach to them was less mutually exclusive: