With all the advancements in financial technology, many people have asked me this question: are … [+]
Financial technology is growing and improving every day and robo- and hybrid-advisors are creating a more accessible and affordable way to gain financial guidance. With all the advancements, many people have asked me this question: are financial advisors going to become obsolete?
Naturally as a financial advisor myself, I sure hope not. But I also really don’t think it’s going to happen.
Yes, things are changing.
Just a few decades ago, financial advisors were mostly stockbrokers who had access to information that the average person did not. The value of the advisor was in their knowledge and understanding of publicly traded companies, fund managers, and financial products that everyday people just did not have.
At this point, however, information has been democratized. It’s readily available for anyone who wants to learn more and has access to a decent internet connection.
This is why I think the role and the value of a financial advisor isn’t gone, it’s simply different.
The math is the easy part.
There are AI tools, algorithms and software that are now able to fully design an investment portfolio in the time it takes to answer a questionnaire about your risk tolerance. However, that doesn’t give a full picture. In fact, it gives a very tiny sliver of a corner of a much larger painting.
Your answers to a risk questionnaire will vary day by day depending on what is happening around you. If you filled out a risk questionnaire in 2008-2009, your answers would be different than if you filled it out during the Roaring 90s when everything was going up.
If you filled it out on Monday after winning $20 on a scratch off lottery ticket, it’ll be different than if you filled it out on Tuesday after hearing a rumor about company-wide layoffs.
What is difficult for a computer, an algorithm or a questionnaire to understand is the psychological and behavioral aspects of finance, and its especially difficult to get a computer to feel empathy.
The new role of a financial advisor.
What a financial advisor has that I feel is irreplaceable is experience.
A person plans to retire one time in their life. It’s almost a make it or break it scenario. Navigating that using only numbers and algorithms is probably not going to help you feel secure.
While a computer can allocate your portfolio, it can’t help you create context around what is happening in the markets, where you are in your life or how current situations are going to impact you.
Financial advisors are now becoming financial personal trainers. They’re accountability partners to keep you moving in the right direction when your brain is telling you to do something else. When you want to sit on the couch because you saw the market take a dive, your advisor is telling you do another round of contributions because the stock just went on sale.
While retirement is a one-time experience for most people, it’s something I see every day. I see people who do it well and those who don’t. It’s that experience and the ability to be a dispassionate third party opinion when you’re overwhelmed with options or just saw bad news on TV.
The Lesson:
The same way that WebMD didn’t put doctors out of business and Turbo Tax didn’t eliminate tax accountants, I don’t see technology replacing financial advisors.
With so much access to information, having someone who really knows the importance of each aspect of a financial plan and can act with reason and experience rather than impulse and emotion is more important than ever. You only get one chance to retire comfortably and I want to see you do it.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regards to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Brotman Financial Group, Inc. and BFG Financial Advisors are not affiliated with Kestra IS or Kestra AS.
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