AI and other future trends for financial advisors

Why advisors 'must love technology more than they fear change'

July 2, 2019 1:35 PM

Like it or not, digitally enhanced advising is here. If firms haven’t begun to transform their practices, they risk losing clients to competitors who have, Scott Klososky, founding partner of TriCorps Technologies, told wealth managers at BNY Mellon Pershing’s recent RIA Symposium in New York.

“Humans are integrating with technology at an extremely high rate,” said Klososky, whose firm advises companies on how to anticipate technology trends and provides cybersecurity services.

American society has entered the Web 3.0 era, Klososky said. Now that social technologies are connecting people, smart devices will start connecting things. After that, expect machine and data intelligence to combine and help formulate decision-making.

By 2045, get ready for “augmented humanity,” the widespread deployment of technology to enhance human capabilities and productivity, resulting in what the company calls an era of “transhumanism.”

For financial advisors, the stakes couldn’t be higher, Klososky warned.

Technology will continue to advance and become more sophisticated. The question for firm owners is when they will jump in, he says. “Are you going to wait until six other firms use the new technology? If you do, you will be at a competitive disadvantage, because reaction time is critical.”

Here’s what Klososky told advisors to do:

Stay at least 18 months ahead of the competition

Technology changes exponentially, but people and organizations change logarithmically, Klososky says.

Reaction time is everything, he told advisors. “How fast will you [implement a new technology] and get a competitive advantage?”

The goal, he maintained, should be “18 months to two years ahead of your competition.”

Monitor your clients

Like it or not, the “surveillance economy,” in which consumers willingly trade their privacy for convenience, is a reality, Klososky told advisors.

For financial advisors that means an era of “hyper-personalization” where firms can digitally customize their relationships and activate data as a competitive weapon, Klososky said.

What’s more, advisors will need to digitally monitor their clients to keep up competitively and create a differentiated experience, Klososky asserted.

Advisors will need to track changes in their clients’ careers, in the assets they own that can be monitored, family status and in the investments that the advisors doesn’t actively manage, he said.

Don’t waste time on risks that aren’t likely to occur

Advisors aren’t investing time in mitigating the risks that are most likely to occur, Klososky warned.

For example, a recent McKinsey survey found that executives spend a great deal of time on operational and financial reporting risks although the likelihood of those problems occurring was small. At the same time, firms were not investing time in forestalling other perils.

For example, although there was an 86% likelihood that cybersecurity breaches or lack of innovation were likely to occur, advisory firms spend only spent 6% of their time focused on those areas.

Bite the bullet on assembling the best teams

“You must love technology more than you fear change,” Klososky told advisors.

In a time of rapid change, wealth management firms need outside help and must pony up to assemble a team of vendors and contractors with superior digital skills, he said.

Firms should also invest time and money in recruiting and training staffers who are skilled in data science, cybersecurity, AI development, business analysis and project development, he added.

Pre-empt the competition

Anticipating technology trends will be an indispensable skill, Klososky says. If planners don’t develop this skill, they are likely to suffer“extremely serious consequences from competitors,” he warned.

For example, as financial advice become more digitally enhanced, deploying artificial intelligence will become “really critical” for advisory firms, Klososky said.

How quickly firms adapt to this reality will greatly influence their market position over the next 10years, he maintained.