There’s a lot of talk about robo-advice and the threat it provides to the financial planning industry, not just in Australia, but worldwide.

And along with these articles are the comments from planners ranging from “It won’t happen to me” and “people don’t want to trust a computer with their financial future” to the other extreme of “robo-advisors will take over the industry”.

The problem with these opinions is that they miss the most important point – it doesn’t have to be an either / or argument. Robo-advice and financial planners can coexist and together provide even better outcomes for clients.

It’s not robo-advice

Firstly, can we talk about the term ‘robo-advice’. Personally, I hate the term, but I’ll use it here because everyone thinks they know what it means.

The problem with robo-advice at the moment is that it’s not really about ‘advice’. I see a lot of online robo-advice platforms that when you dig a bit deeper are actually online investment vehicles. Can I make a point here – if you think that an online investment platform is going to replace financial advice, you’re crazy. An investment is not advice. Yet we continue to call these things ‘robo-advice’ when we should call them ‘robo-investors’.

But big picture – robo-advice is simply another term for technology. And just as technology has disrupted many industries around the world, it will disrupt the financial advice industry. It won’t happen overnight, but it will happen (and I’ll pull out this article at that point to prove I was right!).

The robots won’t replace me

Sorry, they will and they can if you let them.

This article from The Guardian – Robots will destroy our jobs – and we’re not ready for it – shows how technology is impacting the workplace of today. It uses the example of a McDonalds that’s replaced the need to order at the counter with an in-store kiosk system. My local McDonalds has had that for at least a year and it’s something we’re probably all familiar with and comfortable using. We’re happy to agree that the McDonald’s worker will lose their job and be replaced by a machine, yet we don’t want to believe it’ll happen to our job.

Two-thirds of Americans believe that robots and computers will do much of the work currently done by humans in fifty years time, yet 80% of them believe that their own jobs will still exist over that time-frame. That’s a classic case of optimism bias that we as financial advisers should be aware of and stay away from. But we don’t, and we refuse to believe it could happen to us.

I find it amazing that we see technology replacing jobs all around us, yet continue to deny it will happen to us.

But it doesn’t need to happen to you. The key is to perform a duty that a robot (technology) can’t replace.

In my opinion, the role of a proper financial adviser is difficult for a computer to replace. If all you do is recommend investments or insurance products, then you’re already obsolete. The online / phone-based providers will take over your space.

But if you build a business based on advice, where you sit and listen to your clients and help make their wildest dreams become reality, then you’re providing something a robot can’t – the human touch.

Clients value human interaction – face to face or via video or phone – and a robot can’t replicate that.

One of the big things smart advisers can provide to their clients is ‘peace of mind’. Whilst this may seem like a bit of a hard to quantify concept, it comes up time and time again as something clients value. It’s a bit like trust – we know it when we have it.

But if your value-add is ‘I’ll pick good investments’, you’re toast. A computer will do that way better and faster than you can.

Introducing Watson

One of the criticisms I hear from people who don’t believe their jobs are at risk is “a robot can’t do what I do”. My response is simple – you’ll be surprised at what robots can do.

I’m reading Thank You For Being Late by Thomas L. Friedman and he talks about the forces shaping the world today. In the chapter on cloud computing he talks about the difference between programmable computers and cognitive computers.

Programmable computers are what most people are familiar with – you program it to perform a certain task and it does it. A cognitive computer takes this to a whole new level and learns as it goes so it’s able to self-improve.

IBM’s Watson computer is a great example of this. In its early days they programmed it to play chess. If it was just a programmable computer, they’d feed data in to it and it’d play chess according to that data. But it’s not. It’s a cognitive computer so it actually learnt along the way. Every time it played a game it learnt from that game and applied that extra knowledge to the next game. If it lost, it analysed why it lost and worked out what to do to make sure it didn’t lose the same way again.

But to me the power of Watson was shown when it competed in, and won, the game show Jeopardy.

In Jeopardy, the questions are abstract and it takes a great deal of intelligence to be able to work out the correct answers. Sometimes the way a question is asked is just as important as the actual words. You can’t use a programmable computer to win Jeopardy. You need a cognitive computer.

The difference is that with a programmable computer, you’d feed in all the previous questions and answers as well as information from Wikipedia etc and the computer would be able to answer questions based on its knowledge base. But it wouldn’t think for itself.

But a cognitive computer takes that information and learns how to interpret questions and answer them. And to arrive at an answer, it weights the various options before arriving at the one it feels is most likely to be correct.

Watch this video to see Watson in action.

Now Watson is being put to use in the medical profession (amongst others). Friedman explains that “estimates suggest a primary care physician would need more than 630 hours a month to keep up with the flood of new literature that is being unleashed related to his or her practice”. 630 hours! Who has that time in a month?

But a computer can cope with that. By 2016 Watson was being used by 15 of the world’s top cancer institutes. Here’s what it’d ingested:

• More than twelve million pages of medical articles,
• three hundred medical journals,
• two hundred text books, and
• tens of millions of patient records.

The idea behind this was not to replace doctors, but to prove what an aid it could be to doctors.

Last year I read “Rise Of The Robots” and it included a number of examples of how Watson could diagnose obscure diseases. This article in Wired expands more on how IBM are using Watson to help – not replace – doctors. This one from New Scientist talks about how doctors in Germany are using Watson to help them sort through patient conditions to provide a diagnosis (in seconds).

Watson won’t replace doctors. Because a doctor doesn’t just diagnose illnesses and recommend treatment. A doctor interacts with patients – they listen to them, they educate them, they sit with them in their moments of despair and moments of joy. Robots won’t replace doctors, but they will replace aspects of their jobs.

People will always want to deal with a human doctor when it comes to their medical issues, but the doctors will increasingly use technology to assist them with their patient care. Imagine being able to feed a client’s test results and symptoms into a computer that can suggest a diagnoses within seconds. All the doctor would need to do is check the diagnosis and he’s then ready to look at treatment options (and the computer has already suggested the best course of action).

If you’re the patient, what would you prefer? A diagnosis based on your doctor’s existing experience and knowledge where it could take them days or weeks (or months or years) for them to come to a conclusion? Or would you prefer a computer that has millions of pages of medical information and patient records that takes seconds to come up with a diagnoses and can also suggest appropriate treatment based on the information on the thousands of patient records it has analysed based on patients with the same illness?

The future for the medical profession and technology is a collaborative future where people and machines work together.

In the book, Friedman uses an example of an architectural program that actually provides suggestions and feedback on your design as you’re creating it. Imagine being an architect and designing a building. As you plan out a floor, the program makes suggestions around the floor structure, the correct thickness of the walls to maximise energy efficiency and have the best sound absorption; perhaps it suggests the optimal locations for windows and it can also estimate costs in real time so each time you make a change, you can see how if affects the project. This is not something that will happen in the future – it’s here now.

Imagine this sort of technology in the financial planning industry.

You Must Understand Moore’s Law

One of the fundamental concepts to understand when it comes to the impact of technology is Moore’s Law. In 1965 Gordon Moore published a paper in which he predicted the number of components able to be fitted onto an integrated circuit would double every two years. We’ve seen this play out in the computing world where the computer power on a small chip doubles every two years.

Think about the original mobile phones and now look at the iPhones or Samsung smartphones to see how Moore’s Law has impacted your world.

Think about how the cost of internet data has reduced so much over the past decade that being online is now no longer a luxury and no longer something that only happens at home or in the office connected to a physical internet connection.

So whilst you can look at my Watson examples and see the evidence of Moore’s Law being played out all around you, you need to realise that it’s only a matter of time until this law impacts on the financial planning world.

The Future That I See For Financial Advisors

Technology will continue to have a massive impact on the way financial planners do business. Depending on the planner, this will either be a positive or a negative.

If your value proposition is centered around picking products – investments or insurance – you will be replaced by machines. All the things you do around researching a suitable product, preparing application forms and placing the investment or insurance will be able to be done online.

On the other hand, smart financial advisors will create compelling value propositions that are centered around advice, not product. They’ll target specific niches rather than trying to appeal to everyone. They’ll still recommend product, but their value won’t solely be found in that area. And they’ll realise that promising out-performance is a fools game – the value isn’t in investment selection but rather the financial strategies that give rise to the need for the investment product.

These advisers will embrace technology to create business efficiencies. Elements of the financial planning process that can be commodotized will be done by a computer. The whole advice process will be interactive with tools and calculators that they’ll use together with the client.

Imagine completing a fact find verbally – you engage the client in conversation and a system like Google Home or Amazon’s Alexa is smart enough to recognise the context of the spoken words and insert that data into the relevant fields in an electronic fact find. And when you’re completing their fact find the program will suggest other questions to ask the clients. Based on their goals it’ll suggest appropriate strategies and set these up in the calculators for the adviser to use instantly with the client.

Imagine creating a plan for a client and being prompted along the way with ideas to improve the client’s position, all provided by a computer system powered by cognitive programming that improves after each financial plan is completed.

Imagine having different systems that talk to each other so the data exchange is instant. A client comes in with an investment that you haven’t recommended? You’ll submit an online request to the provider, seconds later the client receives a text message with a code from the provider asking them to confirm this request, they text back to approve it and the information is sent down to your office. This happens in seconds or minutes, not days or weeks.

In these examples the technology sits behind the adviser. You’ll use it to make your business more efficient and to reduce the time it takes to provide advice from weeks to days. Or even the same day.

And I’m not talking about templated financial plans that are basic and all look the same. The technology will exist to customise even the most complex of advice.

And this is not ten years away. Re-read that section on Moore’s Law. The change will not be slow and incremental.

Just as Uber and AirBnB came into industries and dominated in a short space of time, the same thing will happen in the financial planning industry.

The disruption may come from an established industry player, it may come from outside. But it will come and you must be ready for it.

If you’re not, you’ll become like Blockbuster Video. And Blockbuster could never recover to compete against Netflix because their business model was obsolete.

In the near-future, smart financial planners will use technology to help them provide better advice. They’ll have a clear value proposition that appeals to their target market. Technology will help them run more efficient businesses, and they’ll be able to spend more time interacting with their clients instead of performing low value tasks.

Where do you sit with all of this? Do you agree that technology will bring massive change to the financial planning industry, or are you in the “it won’t happen to me” camp? Is your value based on selling products or do you have a differentiated value proposition?

Leave a comment below and let me know what you think.

And for those who need some more prompting that the humans are dead… here’s Flight of the Conchords.