Quora Answer: Can Robo-Advisors Replace Financial Consultants?

The following is my answer to a Quora question: “Can robo-advisors replace financial consultants?” 

Robo-advisors are digital applications which provide financial advice based on algorithms.  These algorithms are designed by financial consultants, and investment managers, and coded by software programmers.  These algorithms do not require human intervention to impart financial advice to a client.  Based in set parameters determined through a series of questions, the software automatically allocates, manages and optimises clients assets according to risk appetite, investment horizon, and other forms of discrimination.  That being said, until we have true artificial intelligence with machine learning, a robo-advisor can never replace a good financial consultant. 

These algorithms are coded by humans.  These algorithms are created according set patterns, and assumptions, and are limited to these very assumptions.  A robo-advisor cannot address a situation that falls outside these parameters.  They are limited to the pre-set options available.  A good financial consultants is not limited to these parameters.  He is able to consider developments that are not limited to these set assumptions, and can give better advise. 

Robo-advisors have a role.  They are meant to service the lower end of the market, where the clientele is not as sophisticated in terms of their preferences, with specific categories of budget, all the way to the lower end of the mass affluent spectrum.  Clients that have very specific issues such as tax mitigation, sophisticated investment structures, trust considerations, or are high net worth, would require the services of an actual financial consultant or investment manager.