• Robo-Advisors vs. Human Advisors

     

    If an investor chooses a non-human financial advisor, what price could they end up paying?

     

    Provided by MidAmerica Financial Resources

     

    Investors have a choice today that they did not have a decade ago. They can seek investing and retirement planning guidance from a human financial advisor or put their invested assets in the hands of a robo-advisor – a software program that maintains their portfolio.

       

    Why would an investor want to leave all that decision making up to a computer? In this era of cybercrime and “flash crashes” on Wall Street, doesn’t that seem a little chancy?

     

    No, not to the financial firms touting robo-advisors. They are wooing millennials, in particular. Some robo-advisor accounts offer very low minimums and fees, and younger investors who want to “set it and forget it” or have their asset allocations gradually adjusted with time represent the prime market. In the 12 months between July 2014 and July 2015 alone, invested assets under management by robo-advisors more than doubled.1

     

    Even so, only 5% of investors responding to a recent Wells Fargo/Gallup survey said they had used a robo-advisor, and fewer than half those polled even knew what a robo-advisor was.2

     

    A cost-conscious investor may ask, “What’s so bad about using a robo-advisor?” After all, taxpayers and tax preparers use tax prep software to fill out 1040 forms each year, and that seems to work well. Why shouldn’t investors rely on investment software?

         

    The problem is the lack of a human element. Investors at all stages of life appreciate when a financial professional takes time to understand them, to know their goals and their story. A software program cannot gain that understanding, even with input from a questionnaire.

          

    The closer you get to retirement age, the less appealing a robo-advisor becomes. The software they use can’t yet perform retirement planning – and after 50, people have financial concerns far beyond investment yields. Investment management does not equal retirement planning, estate planning, or risk management.2

     

    Additionally, robo-advisors have never faced a bear market. They first appeared in 2010. Passive investment management is one of their hallmarks. How adroitly will their algorithms respond and rebalance a portfolio when the bears come out? That has yet to be seen.2 

     

    Does a robo-advisor have a fiduciary duty? Many investment and retirement planning professionals assume a fiduciary role for their clients. They have an ethical and legal duty to provide advice that is in the client’s best interest. How many robo-advisors have developed the discernment to do this?3 

      

    The robo-advisor “revolution” may be fleeting. Why, exactly? The whole robo-advisor business model may invite the demise of many of these firms. Robo-advisors pride themselves on low account fees, but as CNBC reports, those fees are now so minimal that many robo-advisors are having a hard time making back their client acquisition costs. Ultimately, robo-advisors may be remembered for the way they stimulated the financial services giants to offer low-minimum, low-cost investment tools.4

     

    In fact, hybrid platforms have also emerged. Some robos now offer investors the chance to talk to a real, live financial advisor as well as actual financial planning services when an account balance surpasses a certain threshold. At the same time, some of the major brokerages have introduced robo-advisor investment platforms with potential human interaction to compete with the upstart investment firms that challenged their old-school approach.5

     

    It appears the traditional approach of working with a human financial advisor may be hard to disrupt. The opportunity to draw on experience, to have a conversation with a professional who has seen his or her clients go through the whole arc of retirement, is so essential.

     

    Some investors will never talk to a financial advisor in their lives. Just why is that? TIAA (formerly TIAA-CREF) surveyed 2,000 adults online and found some answers. Of those who hadn’t consulted financial advisors: 55% feared it would be too expensive, and 49% said it was “hard to know which sources or whom I can trust.” Forty percent were unsure of what questions to ask a financial professional, and 38% said that it would be awkward discussing their finances with someone else.1

     

    These responses point to uncertainty about the process of financial and retirement planning. The process is really quite worthwhile, quite illuminating, and quite helpful. It is not just about planning to improve “the numbers,” it is also about planning ways to sustain and improve your quality of life.

      

    MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com. www.mid-america.us

     

    This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

     

    Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser.
    MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to NPC.

         

    Citations.

    1 - tinyurl.com/hso3ahk [2/28/16]

    2 - time.com/money/4616753/robo-advisor-online-financial-planning-advice/ [1/18/17]

    3 - investopedia.com/terms/f/fiduciary.asp [2/21/17]

    4 - cnbc.com/2016/06/14/is-the-twilight-of-the-robo-advisor-already-at-hand.html [6/14/16]

    5 - forbes.com/sites/katherynthayer/2017/02/15/why-betterment-added-a-human-touch-to-its-roboadvisor-tool/ [2/15/17]

     

  • Should Women Strive to Work Past 62?

    The argument for doing that is pretty convincing.

     

    Provided by MidAmerica Financial Resources

     

    Every now and then, you read an article about a woman past the age of 65 who says she loves her job and will “never retire.” In addition to keeping herself engaged and active, she may be doing herself a great financial favor as well. More women are working after 65, and some are even in the office full time.

      

    How long should a woman plan to work? Should she prepare for a 40-hour workweek until age 65 or age 70? Should she try to work part time after that?

     

    If a woman invests and plans sufficiently for retirement, that may not be necessary – but there are some strong reasons why a woman might want to retire later than age 62.  

     

    Ideally, Social Security would count years spent raising children and caring for elderly relatives as working years. The world is not ideal, however, and Social Security does not. It bases your Social Security income on three key factors; the age at which you claim your benefits is only one of them.

     

    First of all, you must earn wages or have self-employment income for at least ten years to receive any Social Security benefits based on your work record. You get one Social Security credit for every $1,300 you earn in 2017, and you can receive a maximum of four credits annually. After accumulating 40 credits, you are eligible for benefits.1

     

    Social Security checks your AIME to calculate your lifetime benefits. AIME stands for average indexed monthly earnings. The AIME formula averages your income over the 35 highest-earning years of your career.2

     

    What if you work less than 35 years? The AIME formula fills in the missing years with zeros, dragging your average down and your Social Security income with it. Spend several years out of the workforce, and you may effectively reduce your monthly Social Security income.2

     

    Claiming your Social Security benefits well after 62 also has its merits. You probably know that if you claim benefits at 62, your monthly Social Security income will be smaller than if you wait until Full Retirement Age (66 or 67) to collect them. Additionally, your monthly benefits will increase about 8% for each year after Full Retirement Age if you delay claiming them, up until age 70. So, working longer could be a definite plus, especially if you have never married and have no option to receive spousal or widow benefits.2

     

    The longer you work, the shorter the retirement you have to fund. If you work until age 66 and live until age 90 (which, who knows, may be the case), you have 24 years of retirement to pay for instead of 28 (i.e., if you retire at age 62).

     

    Make no mistake, women are working longer these days. A 2016 National Bureau of Economic Research study directed by two Harvard economists, Claudia Goldin and Lawrence F. Katz, found that almost three in ten women aged 65-69 were working last year versus 15% roughly three decades ago. In fact, 18% of women aged 70-74 had jobs in 2016, which is up from 8% in the late 1980s.3,4

     

    While Goldin and Katz determined that women with higher savings and education levels are more likely to work well into their sixties, the difference education makes appears to be slight. Sixty percent of college-educated women born between 1945-49 told the economists they were working at age 64, but so did 50% of all women Goldin and Katz polled in that age group.3

     

    Workplace enjoyment may exert a bigger influence. Almost 90% of the working women aged 59-63 that the researchers talked with said that they had enjoyed performing their jobs 6-8 years earlier.3

     

    So, if you are an educated woman who likes her job, you may end up working past 65 and becoming part of the trend. More years at work means fewer years of retirement to fund and more years for your retirement plan assets to potentially grow and compound (and those last few years of compounding are significant indeed).

     

    Should you try to work past 62? As this article indicates, there are some very good reasons to say “yes” to that question. If your health and life situation permit you to work longer, there may be more upside than downside to staying in the office.

       

    MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com. www.mid-america.us

     

    This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

     

    Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser.
    MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to NPC.

         

    Citations.

    1 - ssa.gov/oact/cola/QC.html [2/22/17]

    2 - fool.com/retirement/2016/12/11/why-more-women-should-work-into-retirement.aspx [12/11/16]

    3 - nytimes.com/2017/02/11/upshot/more-women-in-their-60s-and-70s-are-having-way-too-much-fun-to-retire.html [2/11/17]

    4 - nber.org/papers/w22607 [2/23/17]