Hybrid investing: technology with a human touch

While more people are using robo-advisors to invest, the demand for human advice isn’t going away anytime soon. Especially now, during a time of pandemic and market volatility, investors are keenly aware of the advantage of having an investment professional in their corner.

Thomas Holloway fondly remembers a time when financial advisors were as well known in a community as the town doctor or lawyer. “Remember the small-town banker of the ’50s? The one that would come to everyone’s wedding?” asks the finance instructor at Calgary’s Haskayne School of Business.

With the advent of the robo-advisor – a service that invests your money, typically in a predetermined set of exchange-traded funds (ETFs) – it may appear as if the traditional advisor has become passé.

That’s not the case, though.

While some people are forgoing outside advice and investing on their own, Holloway thinks most investors want that personal touch – especially now when financial markets are impacted by a worldwide event. "People still want a human relationship," he says. “There may be a robo at the front end, but people still want to connect to a human."

Numerous studies show that Holloway is right. According to Accenture, 40% of Canadian investors think that traditional advice is not enough, while 70% are using at least one automated investing tool. At the same time, 70% say humans give the best customized advice. Clearly, Canadians want some sort of technology-human combination, which is often referred to as hybrid advice.

That might involve using a robo-advisor that has a helpline where people can call in to ask questions; or maybe it means having professional managers create the products that the technology then invests in. Some people might prefer using a robo-advisor for their investing and a traditional advisor for budgeting and other financial planning help.

“Financial advisors still have their place,” says Tom Drake, founder of MapleMoney, a financial consulting service. “There's a human touch needed to match people with the right portfolio and to reduce anxiety so that they stick to the plan in rough times. Robo-advisors are a great innovation, but people still want that personal financial plan.”

The human-tech combo

Robo-investing tends to appeal to people who want to “set it and forget it,” says Jordan Bable, assistant professor at the University of Waterloo’s School of Accounting and Finance. These sites provide a low-cost, well-diversified way to invest in the market.

However, most rely on generic risk assessments that may not fully capture an investor’s situation, says Bable. “Robo-advisors don’t provide interpersonal interactions, where (humans) can strengthen a client’s confidence in their investment plan during stressful times.”

Human financial advisors can offer value, provided they thoroughly understand their client’s financial needs and attitudes toward risk. Once they do, they can ensure they’re investing appropriately, they’re meeting their financial goals and staying the course when the market falls. Robo investing platforms don’t do any of that themselves.

As a result, many investors want what Holloway describes as more synergy between tech and human advice. “The advisor of the future is a wealth engineer, helping [investors] know what to do,” he says.