Will robots manage our money?

They’re trying to do lots of other things: set the thermostat, tell us we’re low on milk, drive the car. It’s all part of the “internet of things,” the connection of everything to everything, to make our lives easier. Hey, if I can adjust my home’s temperature from my smart-phone, why not rebalance my portfolio? Even if potential NSA surveillance makes it all a little creepy.

And online brokers are putting the squeeze on traditional brokers. So why not automated investment advice? Sites like Wealthfront or Betterment or Personal Capital have you take a survey, open an account, and generate an investment plan for about a fourth of the cost of a traditional flesh-and-blood advisor. And the robo-advisor is always available to answer your questions, never goes on vacation, and is willing to handle very small accounts.

But investment services are sold, not bought. Most people don’t plan to fail financially, but they do fail to plan. Personal inertia and natural caution make it hard for people to write a large check to some entity they’ve never met—and can’t meet. People depend on personal interaction to determine who to trust. An app can’t look you in the eye.

Still, it’s likely that robo-advisors will stick around, if only as a niche product. If the model works I’d expect big money management firms (like Fidelity of Schwab) to incorporate it into their product line, especially for smaller accounts. Because the last place people want to be adventurous is with their wallets.

Douglas R. Tengdin, CFA

Chief Investment Officer

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