What Human Advisors Do That Robo Advisors Can't

The stock market is on a hot streak, with the Nasdaq composite, the Dow Jones industrial average and the Standard and Poor's 500 index all notching record highs in 2017.

[See: The Fastest Ways to Lose Money in the Stock Market.]

That's good news for investors, but inevitably, what goes up must come down. In a market correction, a trusted human financial advisor, as opposed to an automated one, can be an investor's ace in the hole. A recent survey from Global X Funds suggests investors are already prepping for a downturn.

Sixty-four percent of affluent millennial investors and 48 percent of Gen Xers surveyed said they plan to allocate a greater percentage of their assets to human advisors over the next decade. The majority of investors in both groups said concerns about the current presidential administration prompted the decision.

For two tech-savvy generations to state their intention to use financial advisors more implies that robo advisors, with their minimal costs and automated portfolio management, are no substitute for the human touch when the market slides. As it happens, these affluent young investors may be on to something.

Emotional counseling. In fact, only a human advisor can curb an investor's worst impulses during a correction.

"It's always during market downturns when investors are tempted to make an emotional mistake," says Mark Friedenthal, founder of Tolerisk, an analytical risk assessment tool that financial advisors use. "The primary advantages that a human advisor can offer are rooted in emotional counseling."

It's natural for investors to question their risk exposure when the market declines. In that scenario, a human advisor can bolster an investor's confidence while putting market shifts in perspective.

A robo advisor can't do that.

"Robo advisors fall short on relating to individuals and helping them understand why changes were made and what it means for them specifically," says Matt Reiner, CEO and co-founder of Wela, a personal finance software app.

Robo advisors also fall short at managing expectations and keeping the client from exiting the markets altogether, he says. The problem is that robo advisors only manage investments and not investors' emotional and psychological needs during turbulent times. As a result, there's nothing to stop an investor from making a panic-driven decision when the market swings wildly.

[See: 13 Ways to Take the Emotions Out of Investing.]

An eye on the big picture. A traditional financial advisor does more than just manage emotions during a correction.

"A financial planner is going to look at your whole financial picture to help you achieve your goals and avoid hidden risks that you might not have considered," says Scott Stratton, a certified financial planner and founder of Good Life Wealth Management in Dallas.

A robo advisor, by comparison, might miss things like college savings goals or maximizing tax efficiency. Automated advisors also have limited ability to answer financial questions, such as whether you should pay off your mortgage early instead of investing.

"The best thing a robo advisor can do in a downturn is rebalance your portfolio," Stratton says.

Although important, rebalancing is only one part of managing investments effectively.

Justin Goodbread, a certified financial planner and CEO of Heritage Investors in Knoxville, Tennessee, says human advisors can help investors stay on track. He likens the role of a human advisor to that of a coach.

"Coaches often help athletes reach their desired goals and push the athlete to new personal records," Goodbread says. "A good human advisor can push you further than a robo advisor, although some individuals may be able to accomplish their goals alone."

A human advisor also accounts for an individual's personality and investment preferences.

The right advisor should tailor their advice and guidance to you, says Matt Gulbransen, owner of Callahan Financial Planning Corp. in Minneapolis. "They should also be aware of your faults and vulnerabilities."

Advisor traits to look for. Choosing an advisor, however, isn't always simple. Lou Cannataro, a partner at Cannataro Park Avenue Financial in New York, says investors should consider several criteria when selecting a financial advisor, beginning with credentials. Ask which credentials an advisor currently holds and which ones the person is working on, Cannataro says.

After professional qualifications, look for empathy. You should sense that "the advisor wants to take the time to understand your current situation, your most important goals and the obstacles that may be keeping you from achieving those goals," Cannataro says. That ability to empathize with a client is what separates robo advisors from human advisors, he says.

Referrals are also helpful. Ask for references from an advisor's existing clients to determine whether the person is the right fit.

Going the robo route. Sticking with a robo advisor during a downturn takes a certain degree of confidence.

Reiner says a robo advisor may be more appropriate for someone with a clear investment strategy and a demonstrated ability to refrain from emotion-based investing.

"If you have an inkling of doubt that you would stay invested when you start seeing headlines that the market is plummeting, then a robo advisor may not be the best solution for you," Reiner says.

To use a robo advisor, you should have "a good understanding of your risk tolerance and how that relates to your long-term goals," Gulbransen says. That way, you'll be more goal-oriented when the markets turn volatile.

Your investing horizon also matters. The sooner you plan to use the money you've invested -- whether for retirement, college or a home -- the more important managing risk becomes.

[See: Your 7-Step Checklist to Choosing a Financial Advisor.]

"If you're expecting a robo advisor to become defensive, move to cash or change approach in a downturn, this probably isn't going to happen," Stratton says. "A human advisor, on the other hand, can adapt and respond to ongoing market conditions or to your needs."

Rebecca Lake is a freelance Investing & Retirement reporter at U.S. News & World Report. She's been reporting on personal finance, investing and small business for nearly a decade and her work has been featured on The Huffington Post, Business Insider, CBS News and Investopedia. You can connect with her on LinkedIn and Twitter or email her at rlake0836@gmail.com.