Is technology-driven ‘advice’ a threat or an opportunity for face-to-face financial planning? Andy Hart, financial planner with Serenity FP and founder of TheVoyantist.com takes a view.
The rate of technological change over the last half century has been mind blowing. In the 1960s Gordon Moore was famous for observing that computing power was doubling every 18 to 24 months. This became known as Moore’s Law. Due to the compounding effect of such a discovery we are now at a point where computing power has become exponential.
Marc Andreessen is a wildly successful venture capitalist. His firm operates on the premise that ‘software is eating the world’. What will the advances in computing power and exponential technology mean for the average financial adviser? When will our profession be eaten?
You can picture the scene: “I’m sorry Mr Financial Adviser, pack your bags, the robots are here to replace you. It was fun while it lasted.”
We’ve all heard the term ‘robo adviser’. It’s important to first clarify exactly what a robo adviser is. Wikipedia describes it as ‘a class of financial adviser that provides portfolio management online with minimal human intervention’. Currently I have not found one firm or organisation that actually provides automated advice. ‘Advice’ being the key word. I know it’s possible, however I have not yet seen it. What I have seen is automated investment accounts. There are many companies around the world that provide such a service. The question is, are they going to disrupt the cosy world of personal financial advice? They may do - there is one company that provides ‘investment portfolio advice’ for free - yes for free. The race to the bottom in relation to fees has already been won; it’s literally free in that the fee for creating the portfolio and investing within it is zero (although custodian and ETF charges apply).
The portfolios that robo advice firms create are very similar in terms of their construction. They primarily offer low charging, globally diversified funds, predominantly ETFs. What they create can be easily recreated by an adviser within a packaged, risk-graded investment fund. However, as we know from history and experience, neither intelligence nor empirical evidence sells investment funds. Marketing does. The robo promoter’s pitch is, we’ll do what your bloated dinosaur financial adviser charges you around 2% to do, and we’ll do it for as near to free as we can get it. As professional advisers we know this view is biased and the comparison is far from fair but to the man in the street it could be compelling.
Our value, of course, is working with clients on an ongoing basis and ensuring they achieve their financial goals. Our role is to act as a financial behavioural coach - experts in emotional and human biases. We also have empathy and are skilled at thinking as if we were the client. Most importantly, given the complexities of the tax, pension and investment markets, financial advisers can stand between consumers and the potential to make some very large financial mistakes.
Hence, it is my belief that the current development with exponential technology does not threaten the position we have in the market. The fact that investment management is being demystified and opened up to the average person on the street is great news as far as I’m concerned – and it should be for you too.
Enter the bionic adviser
What is a bionic adviser? A bionic adviser understands that anything which can become binary i.e. 0 1 0 1 0 0, will be disrupted by computers and the growth of exponential technology. This is amazing – and it offers us fantastic opportunities. The bionic adviser is the intersection between robos and humans and creates an environment where both the computer and the human excel. There isn’t a fight between them but harmony of each one’s unique abilities. We require more firms to understand this and create platforms and solutions that marry the two together. I believe humans should do 10% of the work, which adds 90% of the value. The computers should do 90% of the work, which only adds 10% of the value.
Computers process information at lightning speed; they will beat the human in most of the activities we have to undertake as advisers. Those who know me well will know I’m a huge fan of financial forecasting software. Sophisticated financial forecasting software mirrors the environment in which we operate and so understands tax and financial rules. It incorporates hundreds of variables and seamlessly integrates them. Humans can’t do this. We control the machine but all of the calculations and interactions are effortlessly worked out instantly by the machine. However, we are still the experts – the 90% of the value.
Forward-looking, smart advisers are welcoming technological advances with open arms. Allowing the robos to help in the areas where they can create smoother processes and efficiencies.
We should be under no doubt that robos are disrupting this mighty profession; that is inevitable. However, using the right technology, this is a superb opportunity to outsource more of the boring mundane jobs that robos excel at and we humans struggle with. In my view, most of what we do can and should be automated. I always want to embrace future mindsets and operating practices. I do not see anything that cannot be automated in a modern financial planning firm. The only work we should be doing once the turnkey systems and processes have been set in motion is working with our clients in a live capacity on their personal financial plan and goals. Ensuring they get back to what’s important and continue to be disciplined investors and achieve their life goals.
In the UK we only really have one robo adviser; I welcome new entrants. As soon as they allow professional money on to their platforms, which they have done in America, I’m sure there will be a large migration of assets onto these platforms (not least because, in my opinion, most of the current platforms in the UK are not fit for purpose at the moment - but that is the subject for a separate article). The humans are still instructing way too many trades, which ultimately leads to errors. I do know there are firms working on bionic propositions – there are exciting times ahead for the bionic adviser.