If the investment seminar WP attended yesterday is any indication, robo-advisors might want to hold off on their victory party. Here’s why.
Greg Hall is a financial advisor for RBC Dominion Securities in Toronto. Last night he held a seminar entitled “A Shift in Thinking About Mutual Funds” at his downtown office.
WP gladly accepted his invitation to attend.
We wanted to see if anything had changed from the usual wine and cheese meet-and-greet parties (with a little investment advice thrown in for good measure) common in the industry. There was that (in a responsible way) to be sure.
However, running shotgun at this seminar was Patrick McAllister, a portfolio manager with RBC DS’s Portfolio Advisor Group, a bunch of very smart CFAs helping its financial advisors provide clients with the best portfolio management possible.
McAllister’s theme for the evening focused on how retail investors can do things that actively managed mutual funds can’t such as getting in and out of positions quickly, staying completely out of the markets when stocks are overvalued, and not being beholden to benchmarks. Essentially, he was suggesting clients can do better thinking outside of the box, something large mutual funds typically don’t or won’t.
Once the CFA was done with his scripted comments, he opened the floor to questions and comments. It was clear at this point why financial advisors still exist.
One of the seminar guests commented on a slide that showed a sample Canadian dividend fund with 41% of its assets invested in the big six banks compared to a 23% weighting for the S&P/TSX composite index.
McAllister’s point – the actively managed fund lacked proper diversification. The guest on the other hand thought being so heavily invested in the big six wasn’t a bad thing given how well they’ve done. Furthermore, it was better than being invested in American banks which are totally unsafe.
How is a robo-advisor supposed to explain to a client why this isn’t the best course of action? Very difficultly. A financial advisor can handle this difference of opinion with care and understanding. As more questions were asked by the audience (an upscale one at that) it became clear just how little people know about investing.
No robo-advisor no matter how robust is going to be able educate people about investing. That’s the role a financial advisor can and should fill.
And that’s why financial advisors still exist. They serve a purpose.