OPINION: How ‘Robo’ Advisors Will Change Wealth Management


If the legend of John Henry taught anything, it was always bet on the machine.

It’s not a romantic lesson, but a statement of fact: automation handles repetitive tasks much better than people do.

However, there are some areas where, despite advancements in artificial intelligence and other disciplines, automation falls flat. Scientists to date have not found a way to replicate how people think.

Without that capability, AIs will not be able to reproduce all of the capabilities of a knowledge worker, such as a financial advisor.

This isn’t to say that financial advisors, shouldn’t be concerned about their livelihoods. There definitely will be a culling within the industry.

The most endangered will be those advisors who act simply as a delivery mechanism of information and basic services, such as helping a new investor construct the the proper portfolio for retirement. Expect the local financial advisory office to go the same way as the neighborhood travel agency.

The mid-tier regional players will suffer the most from automation as the largest players will be able to leverage their scale and grow their market share at the expense of the mid-tier players. There always will be small firms dedicated to servicing a specific market niche or trying to invent a better mouse trap.

Even those financial advisors that service high-net-worth customers will see a significant change in their jobs.

Automation definitely will take over as much as it possible can, such know your customer filings, investor education, and handling basic transactions.

Financial advisors will focus on the specific tasks where implementing AI and automation is not practical, such as planning complex financial relationships like tax-, estate-, and trust planning.

Not only do these tasks require the mastery of a few disciplines, they require understanding what the client wants as well as knowing which questions to ask when they aren’t quite sure what they want.

Financial advisory also will survive as a profession when dealing with high-net-worth clients for the same reason investment banking still has sales traders serving institutional investors: Not everyone is comfortable making multi-million dollar transactions from the comfort of a Web browser.

This could change as the current generation of retirees die off and are replaced by the more tech-savvy Generations X and Y as well as the Millennials.
Robo advisors will not replace an entire industry, but they will reduce headcount and turn the remaining financial advisors into true specialists.

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