Advisor: You can't 'robo' retirement planning

The investing world is a better place, thanks to the advent of well-funded online investment advisory services.

Collectively dubbed "robo-advisors," companies such as Betterment, Personal Capital and Wealthfront have managed in just a few years to do what the financial industry has failed to accomplish during a couple of centuries: provide quality investment guidance at a cost accessible to most demographics. It is a long time coming.


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Adam Nash, Wealthfront's chief executive, however, isn't fond of the robo-advisor label.

"It is being popularized largely by the traditional advisory community to stigmatize new, potentially threatening entrants into the space who utilize innovative technology," Nash said. "One hundred percent of all Wealthfront employees are human."

I don't doubt that he is correct in his belief that the "traditional advisory community," including the financial media that serve it, have helped cast an impersonal hue on the new service, perhaps as part of an effort to diminish its perceivable benefit.

The financial industry has a long and consistent track record of putting profit over people. In recent years, it has raised, not lowered, its minimum fees and asset thresholds.

Read MoreCan robo-advisors win over investors?

The industry has helped create the current advice shortage, and maybe it should be grateful to robo-advisors for picking up the slack.

I, too, find that the biggest problem with robo-advisor offerings is their moniker. But rather than take issue with the term "robo," I struggle more with inclusion of the word "advisor."

"Advisor" has a certain connotation attached to it, a relational implication that requires elements of personal discovery, history, interaction, storytelling, reflection, clarification, counsel and, most importantly, trust.

It is hard to trust an algorithm, even if it is an algorithm with a fantastic website and a customer service number.


Robo-advisors: Friend or foe?
Robo-advisors: Friend or foe?   

Although adopting largely passive, index-based portfolios may benefit investors by decreasing the cost of investing and more broadly diversifying their holdings, robo-advising does little to address the bigger problem: Investors do a poor job of sticking with their investments.

That is according to market research firm Dalbar and its 20 years of Quantitative Analysis of Investor Behavior studies, though I prefer the less scientifically accurate "behavior gap" illustration from Carl Richards, a certified financial planner and the director of investor education for the BAM Alliance, a community of more than 130 independent wealth management firms throughout the U.S.

Read MoreBest advisors blend tech, touch

Although I am all for better investing mechanisms for more people, it seems that we are in greater need of enhanced behavior management. Technology might aid us in pursuit of that behavior management, but it will never supplant relationships as the optimal construct.

Well-tempered, well-timed and educated accountability is where a genuine advisor can help, but that is really just the beginning.

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When we apply the adjective "financial" to the word "advisor," the gap between "robo" and "real" widens even further.

Of the six modules of the certified financial planner curriculum, only one is dedicated to investing. Indeed, a comprehensive financial or wealth advisor should be able to assist a client in everything from choosing the right auto insurance deductible and determining the deductibility of auto expenses to career and estate planning.

Some of the most challenging decisions for any investor fall into the retirement-planning category.

Like the online financial calculators that have been around for more than a decade, a robo-advisor may help an individual determine how much to put away to reach a hypothetical goal in a modeled future. But they will help less in determining exactly what vehicle should be used to invest those retirement savings.


Read MoreRobo-advisors: friend or foe?

Should an individual go with a 401(k) plan? A traditional or Roth individual retirement account?

A robo-advisor is unlikely to ask why a person is planning to retire in the first place or help weigh the prospect of a second career.

How about determining the optimal way to use Social Security during retirement? Or estimating current expenses and projecting those into the coming years? Examining the tax impact of prospective relocation? Choosing to take a lump sum versus an annuity from a corporate pension? Annuitizing a portion of retirement income now or in the future? Developing an allocation designed to withstand both market forces and required minimum distributions? Determining beneficiaries for retirement plans that sync with the estate plan?

You can't "robo" retirement.

Some of the most important financial decisions simply require real, live advice.

"The attention that robo-advisors have received should encourage 'traditional' advisors to ensure that their service offering is commensurate with their fees."

This isn't an indictment of robo-advisors but of anyone, whether they sit behind a monitor or at the boardroom table, who is passing off mere asset allocation as comprehensive financial advice, financial planning or wealth management.

These services require educated, credentialed, experienced advisors acting as fiduciaries on behalf of clients and actively engaged in a relationship with them.

The entry of robo-advisors into the marketplace is a good thing, at least insofar as it helps consumers who previously had no access to investment guidance build a better investing mechanism and thus a better future.

And while I don't see their services as competing with comprehensive wealth management, the attention that robo-advisors have received should encourage "traditional" advisors to ensure that their service offering is commensurate with their fees.