A year ago, the term “robo advisor” raised alarms on various financial news sites and blogs. Financial professionals feared that computer algorithms would replace human advisors in the advice space. Yet, it has quickly become clear that a computer alone cannot address investor questions, life changes, and, frankly, the emotional aspects of investing. Some combination of human and machine can provide the best of both worlds. Firms are reframing the discussion with the term “bionic advisor,” and 2017 has seen an increased roll-out from large financial firms offering some form of “robo” or “bionic” service.
It appears that investors are ready for online financial advice services. A survey by Investopedia and the Financial Planning Association (FPA) found that 73% who used some form of digital investment advice were happy with it. The survey also found a familiarity with the robo advice concept and that many respondents had looked into such a service for themselves.
On the surface, a bionic advisor offers benefits both investors and advisors. Technology makes the asset allocation decisions in a portfolio much less expensive. Investors who previously would not have met the asset minimum requirement to receive advice from Charles Schwab or Morgan Stanley will now be able to access guidance for their investment needs. It also makes their portfolio accessible online and on demand. They may choose to aggregate more aspects of their financial life in one place, such as retirement, college, and estate planning. Advisors will have to spend less time creating a portfolio and managing it going forward, thereby allowing the advisor more time to service their client and to prospect for additional clients. With the threshold for entry lower, their client pool becomes larger.
The Future is Digital
Firms that had previously provided a purely automated platform are beginning to introduce a hybrid feature to their offerings. Betterment, one of the first robo advisors, will allow investors to choose between a purely digital model and one that incorporates both digital and access to financial advisors.
Communication between advisor and client will also change as a result of technology. Video calls, online chats, and social media interaction will make meetings planned days or weeks in advance obsolete. Technology has made instant gratification tenable in other aspects of our lives and it appears that this trend will continue in financial planning and advice.
Most agree that the role of the financial advisor will shift, not become obsolete, in the future. Perhaps that perspective, coming from the financial world itself, is a bit self-serving: they want to justify the importance of their role. However, in one aspect at least, it does appear that with technology comes information overload. Investors need help sifting through the glut of news articles, blogs, and videos when making decisions. As one advisor posits:
“Dispensing expert information is not going to be enough in the future. We are going to have to help people implement it and help them with behavioral change. Our role is going to shift from someone who dispenses expert information to someone who is more like a coach, a copilot, or a navigator—someone who will help clients figure out what to do when the stormy seas come along and is there by their side to help, live, in real time. That is the future for advice.”
The future for financial advisors may be less gloomy than predicted. However, the ability of advisors to pivot and adjust to the new reality, and to master new technology, remains to be seen.