Online advisory service for asset management has finally made it to the mainstream. “Robo-technology,” as it is called by some in the industry, analyzes stocks, mutual funds, ETFs and other investments vehicles, automatically places trades and maintains proper asset allocation levels within a portfolio. Some argue that using technology places asset managers and the strategies of asset management in a “game of chance.” However, several smaller investments firms see the technology as leveling the playing field for their clients.

Steven Singleton, executive vice president and director of quantitative research and portfolio management for Blaylock Beal Van LLC, is the creator of ELROI Research Analytics, the firm’s proprietary platform for Individual stock and portfolio analysis. Singleton says, “Robo-technology brings these tools and the resulting decision point down to the individual investor and the adviser, empowering them with the control to directly choose the vehicle and structure suitable to their investment goals and horizon.”

As CEO of an investment advisory firm, I agree with him and have begun using a robo-platform to manage my clients’ portfolios as well as my personal portfolio. I see three reasons why this technology will change the game for the small investor and the small investment firms.

Less Risk

The utilization of technology to “assist” with investment selection is nothing new to the investment industry. Big firms have been utilizing technology with their high-net-worth clients for decades. These platforms provide firms the opportunity to offer an affordable “assistant” that can scour through an enormous amount of historical data, statistics, and trends. This provides the investment adviser with an arsenal of suitable recommendations in a fraction of the time and cost it would have taken utilizing traditional methods.

The potential of having unbiased, objective investment ideas is a pretty good thing. The better technology platforms allow the consumer and the asset manager to have some customization and the ability to adjust things before any trades are executed. For the adviser, it provides operational efficiency by reducing manual processing.

In one recent article in a financial planning magazine, an adviser made the comment that robo-technology won’t be tested fully until we have a bear market with declines in the 20% to 30% range. In my mind, no portfolio that is being actively managed should see declines in the 20% to 30% range—and that includes those that are managed by robo-technology!

I believe that a combination of a good technology platform and an asset manager who is a registered investment adviser can provide portfolios that consistently have less risk.

Tax Efficiency

Using technology, larger firms have often been able to provide their high-net-worth clients with better returns and lower tax liability. A lot of the technologies out there today have mechanisms built in that utilize holding strategies as well as good stock selections. A good stock selection strategy typically means that your portfolio will have fewer turnovers. Lower turnover means greater tax efficiency, but not tax avoidance. Robo-platforms allow you to manage tax liability when it might be just a little more conducive to your financial situation.

Tax efficiency is typically implemented via tax-loss harvesting. Online investment adviser Wealthfront defines tax-loss harvesting as, “a technique used to lower your taxes while maintaining the expected risk and return profile of your portfolio. It harvests previously unrecognized investment losses to offset taxes due on your other gains and income.” Wealthfront is an example of one robo-advisory service that implements tax-loss harvesting and tax efficient allocation; however, there are many firms implementing similar strategies. Using robo-technology that is programmed for tax efficiency and set on autopilot can be an excellent feature.

Lower Cost

For smaller firms that can’t afford to hire an entire investment team, or a CFA, robo-technology has leveled the playing field, for both the firms and individual investors. A smaller firm might expend hundreds of thousands of dollars securing a CFA to do research and portfolio construction, where robo-technology can do the job for a fraction of the cost. This can save small firms big dollars that can be utilized to help the firm grow.Passing the cost savings on to investors allows more investors with less assets to better afford advisory services that were traditionally only available to high-net-worth investors.

If you are considering investing on a robo-platform, I suggest that, as with any new opportunity, you conduct due diligence and have a working understanding of how the tool functions. You might want to consider platforms that have no or smaller account minimums while you test the waters. Look for key features like portfolio management and analysis and the option to invest in various types of securities. Personally, I like platforms that offer an open architecture and allow me to make some decisions on my own. Also, check to see what additional fees might be attached to using platforms. [See the box below for questions to ask when investigating robo-advisers.]

As an individual investor, your first step should be to reach out to your adviser and ask for their opinion and ideas on robo-investment philosophy and platforms. Technology is a wonderful tool, but I believe it should only be considered if complemented with the human presence of an adviser. Human expertise, planning, experience and understanding of a client’s long-term strategy is something a computer will never replace, but together it’s a good marriage and can help you reach your long-term financial goals in a cost-effective way.