Advisor Insights

Better Than an Algorithm

Morningstar

By Ray Sin, Samantha Lamas, and Michael Leung

With the rise of robo-advice, new regulations, and other changes, it often seems like the traditional role of the advisor—particularly that of portfolio manager—is under threat. We believe, however, that advisors are in an excellent position to capitalize on these changes by building on longstanding skills and roles. Being a good advisor has always been more than selecting investments and managing portfolios. Psychology is an essential part of working with clients. To quote Benjamin Graham, “The investor’s chief problem— and even his worst enemy—is likely to be himself.”

As investors, we all have behavioral biases, such as overconfidence, confirmation bias, and loss aversion, that lead us astray when making financial decisions. Advisors, however, are in a unique and powerful position to help their clients overcome these. To capitalize on the changing landscape, advisors need to serve as behavioral coaches and help clients navigate their biases and make more rational decisions. Advisors help investors cultivate good financial habits, stick to their investment plans, and avoid emotional responses that affect behavior and undermine long-term success.