Allworth Advice: Robo-advisers aren't always advisable
Question: Candace in West Chester: I’m 31 and thinking of using a robo adviser. Good idea? Bad idea?
A: Full disclosure: We’re a bit biased considering we work for a Registered Investment Advisor that believes in the importance of human financial advisers. But we will try our best to answer this question fairly.
As you likely know, a robo-adviser is essentially an online service that uses algorithms and software to manage your investments and help you put them on autopilot. They debuted a little over a decade ago, and keep growing in popularity due to their ease of use, low to no minimum balance requirements and their low annual management fees.
In fact, they’re so popular that, according to figures released this year from CNBC, robo-advisers will soon be managing $1 trillion worth of Americans’ wealth.
Now, for someone like yourself who is in the early stages of their career and still decades away from retirement, using a robo-adviser can actually be a worthwhile endeavor – particularly if using one helps you prioritize your financial (and retirement) goals. They can also be useful if you have a fairly straightforward or simple portfolio.
But our biggest objection to robo-advisers– especially for folks who are nearing retirement – is their lack of personalization. Yes, they’re less expensive than a human adviser. But can an algorithm tell you whether to take the buyout package? Can it walk you through potential Social Security strategies? Will it help calm your fears and hold your hand when the stock market drops? Will it share advice for how best to deal with an inherited IRA? Will it proactively point out a hole in your investment strategy or estate plan? Can it get to know you and your needs, your goals? We think you get our point.
The Allworth Advice is that robo-advisers are adequate for a certain type of investor who’s at a certain point in their career and when investment management is all that really matters.
But when the time comes, a human adviser can provide something that an algorithm cannot – personal connection. And to us, that kind of value can’t be replaced or replicated by an app.
Q: Doug from Campbell County: Wondering if you can help. I worked for a company many years ago (when I was right out of school) and I think I had a 401(k) with them. But when I left I forgot all about it. Is there any way for me to track this down?
A: Yes, there are some resources available to help in your search. But first, it’s important to note that if your account had less than $1,000, your former company may have cashed it out and sent you a check at one point. If it was less than $5,000, the company could have rolled it over into an IRA. So, just keep that in mind.
If the company still exists, the easiest approach is to just call their HR Department. They should be able to tell you if there’s still a 401(k) in your name, or if they sent you a check, or if the money is sitting in an IRA.
If the company doesn’t exist, that’s when you’ll have to put on your sleuthing hat. Start by searching the National Registry of Unclaimed Retirement Benefits. If nothing turns up there, you can try the National Association of Unclaimed Property Administrators, or the Labor Department’s abandoned plan database. If you think your money might be in an IRA, take a look at the FreeERISA site.
Here's the Allworth Advice: Be sure to begin this quest with the understanding that it might take some legwork to track down your old 401(k). But it’s worth the effort. Good luck!
Every week, Allworth Financial’s Amy Wagner and Steve Sprovach answer your questions. If you, a friend, or someone in your family has a money issue or problem, feel free to send those questions to yourmoney@enquirer.com.
Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses is suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional adviser of his/her choosing, including a tax adviser and/or attorney. Retirement planning services offered through Allworth Financial an SEC Registered Investment Advisor. Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Visit allworthfinancial.com/?c3=allworth-advice or call 513-469-7500.
This article originally appeared on Cincinnati Enquirer: Should I use a robo-advisor?
