Robo-advisors can’t help you navigate life — but people can

In the ever-changing digital world in which we live, I get asked this question a lot: "Will human financial advice be relevant in the future?"

My answer is always the same, and it's an emphatic "Yes!"

I can understand why people ask the question. Our world is becoming more digitized, and the pace of this transformation seems only to quicken. However, what is missing from the conversation is the meaning of good advice — and why people want and need it.

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Jean-Paul Pelissier | Reuters

We learned why personalized advice based on a human connection is important in elementary school, though we didn't know it at the time. The place where good advice exists is the center of a Venn diagram — remember those? — where a client's financial situation and emotional situation intersect.

Let me give you an example involving one of my colleagues. Several years ago this colleague kept getting dizzy spells and thought he was experiencing vertigo.

As most people do when a medical issue arises, he searched the internet and — no surprise — found a frightening list of potential causes, including Parkinson's, brain tumors and strokes.

Full of anxiety, he went to see his family doctor for a professional diagnosis. The doctor listened patiently. Having known my colleague for 20 years, the doctor immediately noticed his demeanor was different and asked about his level of stress.

"Money is an emotional subject, and the worry and anxiety it causes are what make good advice — and the advisors who deliver it — valuable."

Instead of sending him for a battery of tests, the doctor prescribed a little less work, fewer Diet Cokes and more sleep and water. If the doctor had not been able to assess my colleague's behavior using a personal baseline built through years of interaction, he would have likely ended up in an MRI scanner.

The doctor read my colleague, and his emotions, and used his in-depth knowledge to properly assess the situation.

Great financial advisors do the same thing. The value is not in a financial plan itself, but in a financial advisor's ability to interpret and customize it to his or her clients, helping them understand how it can enable them to reach their goals and reading their emotional responses to provide guidance and make adjustments as necessary.

Money is an emotional subject, and the worry and anxiety it causes are what make good advice — and the advisors who deliver it — valuable. In order to demonstrate their value proposition to clients, advisors must move beyond the transactional nature of their legacy business models and focus instead on providing advice during life transitions, when it is most needed.

For example, many parents question whether or not they should help their child with a down payment on their first home. This can be a highly emotional decision.

On one hand, parents feel the urge to help but worry that their children might develop an unhealthy sense of entitlement. On the other hand, if parents don't help, the children could become resentful and accuse their parents of being unaccommodating during a major step in their lives.

Helping families sort through this impasse is a valuable service, and as I've seen many times, advisors can help families come up with creative solutions that take the parents' principles into account while still helping the children feel supported.

Financial advisors can also make a positive impact in their clients' lives during the illness of a spouse. Having a spouse fall ill is a highly emotional ordeal, but it also requires urgent and sound financial decision-making.

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When a much-feared diagnosis of a terminal illness is made, good advisors immediately begin working with the client's estate-planning attorney to ensure estate documents and assets are titled in the correct way so the family is prepared financially. Action in this type of situation requires a high degree of emotional intelligence on the part of the advisor, who needs to know to ask the right questions at the right time and also needs to understand when clients just want someone to listen.

Stop and think about it: Why do you need a financial advisor? You need one because you want him or her to manage your money. But at the end of the day, a relationship with a trusted advisor alleviates the emotional turmoil of lying in bed at night worrying about not having enough money or life insurance benefits to meet the needs of your family — and also makes your spouse feel better about these matters.

Good advice based on a deep personal connection will always be in demand because it takes into account each client's emotional needs, which helps them face potentially difficult situations calmly and rationally. The "robo-advisors" can't forge human connections or understand an investor's emotional makeup.

Technology may change, but people don't, and that's why good advice will always be essential.

— By Bill Crager, president of Envestnet and co-author of "The Essential Advisor: Building Value in the Investor-Advisor Relationship"