A Human Touch Is the Edge Over Technology

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When I was a young loan officer and later a stockbroker at the dawn of the 1990s, I was carefully trained in the art of selling such products as credit life insurance, A-share mutual funds and variable annuities. In those days, commissions on mutual fund and annuity sales ran as high as 8%. None of us thought of ourselves as dastardly, but our mission was clear: sell products, generate commissions. Any discussion of client results was perfunctory at best, and the word advice was not part of the lexicon.

How that has changed during my more-than-25-year career in the financial services business. The relentless progression toward serving customers’ best interests is unmistakable, even if too slow and not always warmly embraced. A case in point: Digital technologies are beginning to disrupt and illuminate long-standing industry norms, some of which were clearly not in the best interests of investors.

Robo advisor describes digital-age technologies that automate investment management tasks such as asset allocation, portfolio construction and periodic rebalancing. These technologies are a form of digital sunlight, which will have an antiseptic effect on investment practices that are not as optimal or equitable as they should be. Forward-thinking advisors are already questioning and reconsidering long-established practices, including pricing.


All of this is as it should be. Advisors will build more successful practices based on enhancing their clients’ overall financial wellness, rather than focusing on rudimentary and now automated asset allocation tasks.

What we think of as robo advisors will morph into digital delivery mechanisms for collaborating with clients, enhancing — not replacing — the human side of advice. Advisors who do not adapt will retire or leave the business.

Just as discount brokers failed to take over the traditional brokerage business in the 1980s, robo advisors will not eliminate the traditional retail advice model. They will however, force it to adapt, self-disrupt or die.

Robos are merely one manifestation of multiple secular trends: the progression toward low-cost investing, the consumerization of financial advice, customers’ escalating service expectations, the automation of portfolio construction and rebalancing, and a growing sensitivity to advisory fees brought on by lower returns for traditional diversified portfolios and the availability of lower-cost alternatives.

Traditional firms will be challenged to adapt. They must consider how they will protect existing revenue streams while experimenting with new pricing and delivery models. They must reconsider their relationship with the investor and the experience provided by advisors. They must figure out how to meet customers where they are while avoiding forced “evictions” of other customers who are quite comfortable where they are.

Within a few short years, the industry will realign pricing models to couple fees with received value. Automation and transparency have slashed the value of simple investment selection and portfolio construction, and investors will insist on receiving far more thorough guidance and planning in exchange for meaningful fees.

Based on these considerations, both robos and robots make a poor analogy for all the disruption. This technology is more similar to an exoskeleton, providing enhanced powers to otherwise ordinary human advisors, much more like Iron Man than The Terminator. 

Steve Dunlap is a director of the California Fintech Network and former CEO of Tower Square Investment Management in Manhattan Beach, Calif.

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Technology Practice management Financial planning