Best financial advice blends technology and human touch

As more online-only wealth management platforms, commonly referred to as robo-advisors, crop up in the marketplace, investors find themselves with a wider array of investment advisory and portfolio management options than ever before.

And as technology continues to leap forward, these impressive platforms will only become more advanced.

However, an automated program, no matter how sophisticated, will never be able to deliver the same benefits as traditional financial advisors, who know clients, their respective goals and their risk tolerances by virtue of the trusted, long-term relationships they have established.

Black businessman using digital display
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Technology is a wonderful tool, but it can never fully replace human expertise, planning, experience and understanding—which is why traditional advisory firms that utilize the technology underpinning robo-advisor platforms offer the best option for investors in reaching their long-term financial goals.

Dissecting robo-advisors

Robo-advisors understandably look attractive to investors, especially young, tech-savvy millennials. At first glance, they appear to create and manage portfolios for investors at considerably less cost than human advisors and/or their firms. But let's take a closer look.

These online-only platforms combine computer algorithms with aspects of Modern Portfolio Theory, the portfolio management approach used by many advisors to match investors with investment strategies and build their portfolios.

However, computer algorithms and Modern Portfolio Theory elements are not enough to effectively manage an investor's portfolio over the long term or ensure that an investor's long-term goals are met.

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What investors may not realize is that robo-advisors use the same turnkey asset-management platforms and model portfolio programs that human advisors rely on in the course of their operations, but without the personal touch.

This technology was designed to help advisors run their businesses more efficiently and spend more time strengthening client relationships—in other words, it was meant to optimize the potential of human advisors and portfolio managers, not act as a substitute for them.

Human input is essential

Positive investment results depend on more than just a well-diversified portfolio and a sound investment strategy. Computer algorithms can't take into account a person's experiences, preferences or long-term goals.

While robo-advisors can help investors craft portfolios and strategies to obtain a certain level of assets over a specific time frame, they can't help investors plan for unexpected events, or understand how much money they will actually need to not only reach retirement but to afford to live out the dreams they've had for those years.

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For example, if someone wants to live in a different state in retirement, the taxes in that state might be higher than his current state of residence—and therefore, that investor would need to save more than expected before retirement in order to make his dream a reality. A computer algorithm has no solution for that problem.

Traditional advisors have years of experience guiding clients through a variety of market conditions, and this expertise is something investors can't find anywhere else.

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Only a flesh-and-blood advisor can actually sit down with an investor and create a long-term, detailed financial plan taking into account all of that client's preferences and goals.

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In addition, while the sophisticated technology and lower fees can be attractive, a robo-advisor can't help an investor make critical decisions and move forward after a death in the family, or readjust a financial plan as the client ages.

Furthermore, traditional advisors can better predict and plan for changes in market conditions.

Robo-advisors rely on historical data to detect possible market downturns, but human advisors can pick up on signals beyond data, such as developments or trends in certain industries or countries, that robo-advisors can't detect.

"When choosing a financial advisor, investors should investigate whether or not the advisor offers interactive online solutions that strengthen their relationships with clients, and is committed to frequently upgrading its technology."

Best of both worlds

While robo-advisors lack the human expertise and experience that traditional advisors possess, they offer an important benefit for investors: Their interactive platforms make their fees and operations more transparent than those of traditional advisors.

Fortunately for investors, more advisory firms are adopting the sophisticated online solutions that robo-advisors rely upon, making them available and transparent at any time.

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For example, some registered investment advisors offer interactive client portals that enable investors to view account reports and updates, as well as educational materials such as white papers and videos, at any time. These client portals also include communication tools to facilitate more frequent interaction with advisors, and mobile apps allowing investors to log in from anywhere with an Internet connection.

When choosing a financial advisor, investors should investigate whether or not the advisor offers interactive online solutions that strengthen their relationships with clients and is committed to frequently upgrading its technology.

Online risk assessment tools can match investors with advisors that provide sophisticated technology for clients, and pass on the risk tolerance scores and other calculations they compute to the advisors that investors choose.

Think long-term

Robo-advisor platforms may be less expensive and more transparent, but over time traditional advisors can provide better overall returns and rewards using the technology underpinning robo-advisory offerings. Investors should keep this top of mind when deciding where to entrust their assets.

—By Eric Clarke, special to CNBC.com. Clarke is president and CEO of Orion Advisor Services.