Robo-advisors and humans: Hard drive or heart?

Tom Foster

By Tom Foster
E. Thomas Foster Jr. is head of strategic relationships for retirement plans for MassMutual.
Posted on Jun 9, 2017

The hit movie “Sully” depicted the heroic, safe landing of a jetliner with 155 passengers on the Hudson River by pilot Chesley “Sully” Sullenberger after a flock of birds crashed into the plane’s engines. The back story of the landing is instructive on the value of advisors in today’s digitally connected world.

The movie recounted the events, including a federal probe into whether Capt. Sullenberger and the crew of Flight 1549 took appropriate action. In this dramatized rendition of the “Miracle on the Hudson,” the government’s computerized simulators showed that one of the plane’s two engines was still functioning, meaning that the jet could have landed safely at either one of two nearby airports.

Sully, however, insisted that he lost both engines, which left him insufficient time, speed, or altitude to land safely at any airport. He and his first officer, Jeff Skiles, demonstrated that the computer simulations made inaccurate assumptions that would have actually crashed the jet. Sullenberger and Skiles were exonerated of any “human error” that would have ended their careers.

The controversy about whether the pilots took appropriate action is not unlike today’s raging debate over the virtues of robo advisors vs. human financial advisors. For advisors – the human kind -- the essence of the argument is that computers have hard drives whereas humans have hearts.

The MassMutual Retirement Savings Study found that 32 percent of Americans polled said they relied on a financial advisor to guide them in making decisions about investments.1 However, older respondents were much more likely to use an advisor, with 62 percent of those ages 65 or older relying on professional money advice as compared to 8 percent of millennials. Presumably, the older respondents had more savings and also more to lose, so they chose to obtain guidance from another human – with a heart.

Younger investors were much more likely to gravitate to online financial tools than older investors. It’s not a bad place to start as computer-supported tools such as savings calculators, asset allocators and even Monte Carlo modelers may be very helpful and insightful. However, they can’t replace the human connectivity and judgement provided by an in-the-flesh advisor.

An advisor can look a client in the eye and make an emotional connection. Advisors may ask questions to probe a client’s goals and objectives, but also to learn about their dreams. Try talking about that aspiration to retire in the mountains with a savings calculator.

Advisors can also hold their clients’ hands, especially in times of market volatility and disruption, or when they are experiencing a personal crisis. Online tools won’t calm clients’ nerves, reassure them or help them focus on the long term. Instead, most online tools simply enable clients to change their investment strategies whenever they please, as quickly as possible, even when they’re having an anxiety attack about the market correcting.

That’s not to say that online tools don’t have their place. Both clients and advisors alike can make great use of digitally enabled tools to run calculations, test hypotheses and measure progress towards goals. Many advisors encourage clients to connect with online resources, especially those available through their employer’s retirement savings plan.

Most flight crews also rely on digital tools, including automatic pilot during long flights, plotting navigation, measuring weather and flight conditions, and many other necessary tasks. But when the flight gets bumpy or worse -- when there is an emergency like Sully Sullenberger encountered – how many passengers would want to rely on a human with a heart rather than a computer with a hard drive?

It’s similar for saving for retirement and investing. When the markets get bumpy or worse, would your clients or prospective clients want to entrust their life’s saving to something with a hard drive or someone with a heart?

MassMutual, "The MassMutual Retirement Savers Study," April 2017.