With a growth in FinTech, will traditional financial advisors become obsolete?
Financial technology is growing and improving every day, and robo and hybrid advisors are creating a more accessible and affordable way to get financial guidance. With all the advancements, many people have asked me this question: are financial advisors going to become obsolete?
As a financial advisor myself, I certainly hope not. But I really don’t think that will happen either.
Yes, things change.
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 lay in their knowledge and understanding of listed companies, fund managers and financial products that ordinary people just didn’t have.
At this point, however, information has become democratized. It is readily available to anyone who wants to learn more and has access to a decent internet connection.
This is why I believe the role and value of a financial advisor is not gone, it is simply different.
The math is the easy part.
There are AI tools, algorithms and software that are now capable of fully designing an investment portfolio in the time it takes to answer a questionnaire about your risk tolerance. However, it does not give a complete picture. In fact, it provides a very small part of a corner of a much larger painting.
Your answers to a risk questionnaire will vary from day to 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 went up.
If you filled it out on Monday after winning $20 in a scratch card, it will be different than if you filled it out on Tuesday after hearing rumors of company-wide layoffs.
What is difficult for a computer, an algorithm or a questionnaire to understand are the psychological and behavioral aspects of economics, and it is especially difficult to make a computer feel empathy.
The new role of financial adviser.
What a financial advisor has that I feel is irreplaceable is experience.
A person plans to retire once in their life. It’s almost a make it or break it scenario. Navigating using only numbers and algorithms probably won’t help you feel safe.
While a computer can assign your portfolio, it can’t help you create context around what’s happening in the markets, where you are in your life, or how current situations are going to affect you.
Financial advisors are now becoming financial personal trainers. They are responsible partners to keep you going in the right direction when your brain tells you to do something else. When you want to sit on the couch because you saw the market take a dive, your advisor tells you to make another round of contributions because the stock just sold.
While retirement is a once-in-a-lifetime experience for most people, it’s something I see every day. I see people who do well and those who don’t. It’s that experience and the ability to be a dispassionate third-party opinion when you’re overwhelmed by options or just plain bad news on TV.
Just as 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, it is more important than ever to have someone who truly knows the importance of every aspect of a financial plan and can act with reason and experience rather than impulse and emotion. You only get one chance to retire comfortably and I want to see you do it.
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The opinions expressed in this commentary are those of the author and do not necessarily reflect those of 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 expert, lawyer or tax advisor regarding your individual situation. Comments about past results are not intended to be forward-looking and should not be taken as an indication of future results.
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