Articles

Best of Both Worlds: Blending Technology and Human Advice for a Better Financial Life


IBM PC 1988

With technology touching virtually every aspect of our lives, it can be easy to lose sight of the critical role that person-to-person relationships and human expertise continue to play in certain key areas — and in our financial lives in particular.

As tempting as it may be to default to the many tech tools available today to manage our money, and as useful as many of those tools can be in helping us to get a better handle on our finances, there remains a strong role for person-to-person professional guidance and the human element in our financial lives. Indeed, the best financial outcomes for people oftentimes are the result of them blending financial technology — algorithm-driven automated investment platforms (AKA “robo advisors”), apps, online calculators, automated banking tools, software, etc. — with advice from a trusted and skilled financial professional.

Investors appear to see merit to the “best of both worlds” approach. Among the key findings from a survey of more than 2,000 investors conducted jointly by the Financial Planning Association® (FPA®) and Investopedia in 2016 include:

  1. Investors require both high-tech and high-touch forms of advice to satisfy their financial needs.
  2. Investors are equally satisfied with automated investing platforms and financial planners/advisers, but appear to be more satisfied when utilizing both.
  3. There is a growing opportunity for automated investing platforms and financial planners/advisers to work together.

“It’s not a question of either technology or advice from a financial professional,” observes CERTIFIED FINANCIAL PLANNER™ (CFP®) professional and FPA member Sean M. Williams, who heads Sojourn Wealth Advisory in Timonium, MD. “Really, you need both, where you embrace technology where it can help, and you’re also getting the care, advocacy and experience of a financial professional and all that relationship can bring to what can be a very complex part of your life.”

The role of technology. Today’s tech tools are “great at providing people information fast. People can now be more informed about their finances,” says Williams. “My clients enjoy having an online client portal where they have access to their financial plan and can see where they are financially. It provides comparisons and what-if scenarios to help aid them in making decisions. They even have access to it through an app.”

A small but growing segment of investors are relying on automated investment platforms to manage investments. And as the FPA and Investopedia note in their report, those platforms have value. “Automated investing platforms are making it possible for investors of all backgrounds and asset levels to get easily accessible, lower cost investment services.”

Almost three-quarters (73 percent) of the investors who use a primary automated investing platform say they are satisfied or very satisfied with the platform they use. They are most satisfied with the performance of the platform, the platform’s transparency regarding fees, its accessibility on multiple platforms, its investment options and its investment rebalancing services, all factors that have little to do with actual human interaction and intervention.

Beyond platforms and portals, cyberspace is teeming with tech tools that can make projections and perform other key financial functions in a snap. Need a ballpark figure for how much monthly income you’ll have during retirement? Want to track household spending or automate the process of saving toward a goal, such as purchasing a house or funding a child’s education? Want the ability to view investment accounts and adjust how they’re allocated in real time? There are apps, calculators and tools to do all that and more. Many are easy to use and come at little or no cost.

The role of a financial professional. Three-quarters (75 percent) of people who work with a financial planner/adviser indicate they are satisfied or very satisfied with that relationship, with nearly half saying they are very satisfied. They are most satisfied with the services their planner/adviser provides in the areas of estate planning, tax planning, investments and retirement planning, and with the adviser’s experience working on matters of top concern to the client.

For people who have needs in these areas, an automated investment platform may not be adequate to assess and coordinate the many moving parts and nuances involved. The more complex a person’s financial life, the more they may tend to benefit from personalized advice, delivered by an actual financial professional. “Sometimes it’s just having another set of eyes, an expert’s perspective, someone to provide counsel,” says Williams.

In the FPA/Investopedia survey, the small segment of investors who use a primary automated investing platform say they are less satisfied with the responsiveness of those platforms to their questions, an apparent communications shortcoming that could become more pronounced during times of financial stress, such as during a period of stock market turmoil. Forty percent of survey respondents say they are either uncomfortable or very uncomfortable using an automated investing platform during extreme market volatility; 30% would classify themselves as either comfortable or very comfortable doing so.

Here’s an area where access to, and the ability to communicate with, an actual human being, and do so in a timely fashion, can prove valuable. “It’s important for people to hear, ‘Don’t worry, your investments are going to be okay’ from a professional they trust,” says FPA member Vladimir Kouznetsov, CFP® with Retegy in Irvine, CA.

The ability to discuss and work through financial issues with a trusted adviser is important whenever a major stressor arises in a person’s life, says Williams. “It could be a first-time home purchase, it could be reshaping your finances after a divorce or the loss of a job — really during any large changes and transitions, where there’s nuance to how a person’s money should be handled in a specific situation, and where a person needs assurance and confidence.” Make a schedule to update your objectives and the corresponding areas in the plan on a regular basis, such as monthly, in order to be as prepared as possible for events that can change.

Blending technology and professional advice to get the best of both worlds. Given the distinct benefits that both financial technology and human advice provided by a financial professional can deliver, how do you maximize what each offers to improve your financial life? Start by forging a relationship with a financial professional with whom you have a rapport, who has proven skills in the areas of your financial life that matter most to you, and who will always put your best interests first (“fiduciary” is the formal term for one who is obligated to always act in the best interests of their clients). To find one in your area, visit the Financial Planning Association’s searchable database of CFP® professionals at www.PlannerSearch.org.

Make a point to ask your financial professional about the tech tools they offer to support and complement the services they provide. Do they provide clients access to an online portal to monitor investments and other elements of their financial plan, for example? Then have them walk you through how to use the tools they offer.

To the extent you’re comfortable doing so, use technology to communicate with your financial planner, because you now have multiple convenient channels through which to reach him or her, and for him or her to reach you, such as via email, text message, or web conferencing. These channels can augment and complement more traditional methods of communications (telephone and face-to-face).

Save time and make life simpler by automating financial functions such as bill payment, retirement account contributions, college savings plan contributions and the like.

And finally, search the web for articles about the best personal finance tools out there, then ask a financial professional about some of the tech tools he or she recommends, because the range and quality of these tools continue to improve rapidly. As Kouznetsov notes, “The best is yet to come.”

January 2019 — This column is provided by the Financial Planning Association® (FPA®) and FPA of San Diego, the principal professional membership organization for Certified Financial PlannerTM (CFP®) professionals. FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide more than 23,000 members with tools and resources for professional education, business support, advocacy and community, FPA is the indispensable resource in the advancement of today’s CFP® professional. Please credit FPA of San Diego if you use this column in whole or in part. 

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.

 

Five Steps to Limit the Financial Damage from a Natural Disaster



A major earthquake in Alaska. Devastating wildfires in California. It was a busy final few months of 2018 for natural disasters in the United States, punctuating another year of costly losses of life and property, and providing Americans with a billion-dollar reminder of just how important it is to take steps in advance to prepare and protect their assets from the calamitous climate, weather and natural events that are battering the U.S. and other countries with increased regularity.

Globally, the frequency of natural disasters — earthquakes, storms, floods, drought, etc. — has quadrupled since 1970, to more than 400 per year, reports PreventionWeb, an arm of the United Nations Office for Disaster Risk Reduction. And the U.S. is consistently among the hardest-hit countries. For example, the epidemic of wildfires that swept through parts of Southern California last summer and fall are expected to result in total economic losses approaching $400 billion, according to AccuWeather, making it the most expensive natural disaster in U.S. history.

If you’re among the millions of people who live and work in areas that are susceptible to natural disaster, the choice is simple: prepare ahead of time to protect your assets, both tangible and intangible, or live with the very real risk of losing things you cannot afford to lose, with little recourse for replacing them. Because while you may not be able to escape a natural disaster, you can take steps to limit the damage, financial and otherwise, that it inflicts upon the things you value. Those steps include:

  1. Maintaining a thorough, up-to-date inventory of your home and its contents. This is mostly to document your personal property in case it’s damaged or destroyed and you need to make an insurance claim to replace it or recoup its value. Anything of value — electronic and computer/home office equipment, furniture, jewelry, etc. — should be logged in the inventory. Be sure to include serial number, purchase price, model number and the like, or if those don’t apply (such as with a piece of jewelry, or a one-of-a-kind piece of art or antique furniture), a detailed description of the item and its origin. Support that with video or still photographic images of all the items on the list and capture the layout of the house from outside in, in case the house needs to be rebuilt. Keep multiple hard and digital copies of the inventory, including at least one away from the home.
  1. Storing originals of key documents and valuables remotely. One-of-a-kind documents like passports, birth certificates, marriage license, previous-year tax returns, titles to your home and vehicle, etc., are best stored off-site at a bank safe deposit box. You might also use the box to store smaller valuables such as jewelry.
  1. Keeping a current digital record/inventory of all accounts and important documents, and storing it off-site AND in the cloud. Build a single digital repository to house digital copies of the aforementioned one-of-a-kind documents (passports, birth certificates, etc.). Scan those documents to convert them into digital files, and keep the digital files in the repository, along with information on all your financial assets, credit cards, investment accounts, retirement accounts, insurance policies, bank accounts (checking, savings, etc.), loan/mortgage accounts, previous-year tax returns, business assets, real estate holdings, will, powers of attorney and other estate documents, and more. For each account in the inventory, include the institution that holds it, the account number, online user IDs/passwords, value of assets in the account, beneficiary information — any relevant information that you (or someone close to you) may need to access. Keep hard copies at home and off-site, such as in a safe deposit box. Also make an electronic copy of the inventory and keep that file not just on your computer but in the Cloud, where you can access it if something happens to your computer.

To help organize it all, FPA member Monica Dwyer, a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional with Harvest Financial Advisors in West Chester, Ohio, recommends using a digital repository tool such as Everplans (www.everplans.com), which provides a secure digital archive of all the above and allows you to share that archive with people of your choice.

  1. Ensuring you’re covered with insurance — the appropriate type, in the appropriate amount. For its ability to protect the value of your assets (if not the assets themselves) should they be damaged or destroyed in a disaster, insurance is a must, says Dwyer. Essentially, insurance is designed to reimburse the policy owner for the value (full or partial, depending on what’s stipulated in the policy) of the insured item(s). Homeowner’s insurance thus compensates the homeowner when the home or its contents are damaged or destroyed. Renters insurance does likewise for people who rent their home.

For people who live in disaster-prone areas, the coverage shouldn’t end with homeowner’s insurance. Dwyer recommends backstopping homeowner’s insurance with other forms of property-casualty insurance that are appropriate to the type of disaster risk you and your property face, whether that’s flood insurance in flood-prone areas or fire insurance, earthquake insurance, etc.

With any insurance that you purchase, Dwyer suggests a policy that reimburses claims for the full replacement value of the assets, not just it’s actual cash value (the replacement cost minus depreciation). If your home and its contents are destroyed by fire, for example, you want to be reimbursed in amounts that cover the cost to replace them with a new home and new like-kind items.

  1. If you own a business, taking extra protective measures. Steps 1-4 above also apply if you own a business or a stake in a business. That holds true for key documents (such as partnership agreement, corporate operating agreement and bylaws, etc.), accounts (bank, retirement, etc.), hard assets (building, product inventory, etc.) and intangible assets, such as critical business data (employee info, financial records, customer and inventory data, etc.). Likewise, be sure all this key information is stored digitally in the Cloud, and that where possible, physical copies are stored offsite as well.

Consider developing a business continuity plan that includes employee contact information, information about backup vendors/suppliers, communications protocols with staff, and what-if procedures for handling key business processes and payroll should disaster strike.

Your business assets also need to be protected with insurance. Make sure you have insurance that covers the type of damage your business may encounter from a disaster, such as wind or water, and that you have enough coverage to return your business to operation post-disaster. Also consider business interruption insurance, which covers lost income due to a disaster-forced shutdown.

A financial professional can provide valuable guidance on insurance and other financial aspects of disaster preparedness. To find one in your area, visit the Financial Planning Association’s searchable database of CFP® professionals at www.PlannerSearch.org.

January 2019 — This column is provided by the Financial Planning Association® (FPA®) and FPA of San Diego, the principal professional membership organization for Certified Financial PlannerTM (CFP®) professionals. FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide more than 23,000 members with tools and resources for professional education, business support, advocacy and community, FPA is the indispensable resource in the advancement of today’s CFP® professional. Please credit FPA of San Diego if you use this column in whole or in part. 

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.