As the learning capability of machines continues to improve, advisors are increasingly finding themselves outmaneuvered by robos. These digital advisors are particularly appealing to millennials, who now represent close to half of the U.S. online banking population. To that end, there is a technological gap as well as a demographic vulnerability that advisors are facing, especially as they help consumers with the dual challenge of managing short-term spending and long-term financial planning.
How can human advisors overcome this digital challenge and rise above the competition presented by robos? It starts with taking advantage of the same technologies — algorithms combined with big data and machine learning — to provide even better service to clients. Technology works best when combined with human intelligence, which is why financial advisors should not fear the rise of the robos, but instead take advantage of artificial intelligence solutions that are currently underutilized.
Where traditional financial institutions and advisors fall short is leveraging data from short-term spending, saving, and borrowing combined with data from long-term financial planning to deliver advice and guidance that can help clients. The truth is, scaling a solution that can gather, categorize, and normalize this data from multiple sources is the biggest challenge. This is where the use of AI and machine learning technologies can help automate complex processes so advisors can understand the full context of their clients’ financial situations.
Increasingly, advisors are looking toward family office style services, private wealth management advisory firms that serve ultrahigh-net-worth investors, to deliver heightened value with a broader range of services. This model, though, can be scaled down to help clients lower on the wealth spectrum in their day-to-day finances. For instance, by helping automate decisions on what bills to pay first (mortgage vs student loans). By leveraging AI to deliver moments of “micro advice,” advisors can deliver more value to clients. AI technologies also empower advisors to scale personal financial management across their book, typically an area that was underserviced or ignored. As a result, clients achieve better financial health and develop a better mindset to focus on long-term goals and planning.
This use of technology can be used to deliver thoughtful narratives that will help clients through personalized data intelligence gleaned from peer comparisons. Indeed, working with financial advisors can be a big hurdle for younger clients who may feel they “don’t have enough.” Advisors are increasingly providing PFM tools to help investors explore, educate, and compare themselves to others. This anonymous, but relevant, type of benchmarking can help clients learn from peers in similar financial situations, income, spending and geography to help them develop realistic goal-based solutions for achieving financial wellness. The first step is for investors to enroll in a digital advice program which helps to bridge what was originally a big hurdle and makes full advice more approachable while helping them become more organized and goal-oriented.
By combining guidance on day-to-day finances with future planning, financial advisors can better aid in improving their clients’ financial wellness. One exciting example using omni-channel delivery such as chatbots, alerts, emails and SMS demonstrates that financial advisors can provide specific advice such as, ‘eat out one time less per month to save for retirement or transfer a fixed amount into a savings account every month for a down payment on a house.’
What is the value of human financial advisors versus robo advisors? Together, both are better. Human financial advisors deliver better, deeper, and broader financial thinking and planning than technology is capable of doing alone. By leveraging AI technology to scale coaching and financial planning services, financial advisors will continue to excel in relating to clients, earning their trust, and providing advice for complex situations. Technology helps financial advisors scale, but technology alone is not as powerful in delivering advice as it is when combined with human interactions. Only humans can get to know their clients as unique individuals, predict the changing landscape, help to plan for changing regulations, or optimize for what will come. While digital advice platforms continue to make headlines, they cannot deliver the added value and insightful guidance that investors can receive when they develop a trusted, long-term relationship with a professional, human financial advisor.
Colby Payne, senior director of Product Management from Envestnet|Yodlee contributed to this article.