The prognostications for financial advisors are dire.
Despite such glum predictions regarding their forthcoming professional demise, more than 200,000 financial advisors continue helping their clients manage their investments and prepare for more secure financial futures.
It’s quite clear – technology is fundamentally changing almost every aspect of our lives. The financial services professions are not immune, as it’s undeniable that technology provides more efficient access to information and improves transparency regarding almost any topic.
For example, the advent of online quotes scared many brokers of the time because, suddenly, potential clients didn’t need to call. A broker’s value was largely based on access to otherwise unavailable information. The advent of the Internet necessitated change. That change included an expanded focus for the industry’s financial advisors – away from product focused sales pitches and instead toward needs-based planning and asset allocation, which better served clients. Financial professionals concentrated on first understanding clients’ needs and aspirations followed by recommending portfolio structures and longer term estate planning.
Like the advent of the Internet and online access to information, the latest alleged threat to human financial advisors is from so-called robo advisors – the algorithm-based online applications that provide a recommended asset allocation depending on an investor’s responses to a series of questions.
For advisors whose primary value proposition is recommending asset allocations to clients, their business and livelihood is in jeopardy.
THE HUMAN ADVANTAGE
But that’s not the focus and value proposition for most trusted, competent financial advisors. The robo advisors will appeal to many do-it-yourself investors. However, they won’t replace or displace the vast majority of trusted, competent, professional human financial advisors for a variety of reasons:
- Asset allocation is only one component of what financial advisors offer.
The fact is that many professional financial advisors outsource asset allocation and investment selection decisions to highly educated, full-time dedicated professionals. In today’s world that includes active and passive investment managers. By doing so, they have already evolved their practices to focus on more holistic wealth and retirement planning. They spend their time understanding the many facets of a client, then creating a plan that includes a variety of tools – from insurance to estate planning – to build, extend, gift and transfer wealth.
- Personal relationships matter.
Asset allocation is the science of investing. It’s evidence-based and logical. However, there’s a substantial amount of art to providing professional financial advice. Competent advisors don’t just ask questions and fill in blanks with the answers. They listen, ask nuanced follow ups, challenge clients’ thinking, and encourage them to ask themselves deeper questions about what motivates, scares or inspires them. They build relationships and become trusted guides, helping their clients make decisions with confidence. And with that confidence comes the ability to better resist emotional responses to market conditions or changing personal situations, which typically means better outcomes long-term.
Recent volatility reinforced this for some do-it-yourself investors, who thought they could “set it and forget it” but quickly realized an experienced, trusted professional may have helped avoid a regrettable decision when anxiety and doubt surfaced.
- Complexity demands attention.
Finally, just as online tax preparation solutions are appropriate for some, online asset allocation applications have their place and will also appeal to certain people. However, as life’s complexities increase – whether from business interests, as family needs change or when other influences arise – so does the likelihood that a person will seek the counsel and guidance of a trusted professional.
There are many well-educated, capable, successful adults who could do their own taxes, manage their own investment portfolios, or develop and monitor their personal and family’s financial plans. But most would rather not dedicate the time or energy when they can rely on a professional who spends his or her days doing the job (and has for many years), who has experienced similar client cases, and who will provide context and nuanced advice and guidance.
At Raymond James, we’re embracing technological innovations and developments that will assist financial advisors with more efficiently delivering better experiences and better outcomes for clients. We’ve increased our financial advisor-focused technology platform budget over 70% in the past five years. We’re exploring a low-minimum, professionally managed account to better serve the next generation of clients now. And we’re providing advisors with extensive resources and support to ensure they are differentiating themselves with the holistic, goal-oriented wealth planning advice that many of today’s clients demand.
But we’re not so focused on the new that we abandon the critical core of our firm’s 50+ years of success – the relationships financial advisors have with their clients. That’s why we won’t launch a direct-to-clients online advice tool that competes with human advisors.
Instead, we’ll continue investing heavily in resources and applications that support competent, professional financial advisors – leveraging technology to elevate their abilities to more efficiently manage their businesses, improve their clients’ experiences and deliver even better outcomes for their clients.
Scott Curtis is president of Raymond James Financial Services.
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