We are entering the Bionic Adviser age, are you ready?

The rate of technological change over the last half century has been mind blowing. In the 1960’s Gordon Moore is famous for observing that computing power was doubling every eighteen to twenty four months. This became known as Moore’s Law. Due to the compounding effect of such a discovery we are now at a point where computing power has become exponential.

Marc Andreessen is a wildly successful venture capitalist. His firm operates on the premise that Software is Eating the World. What will the advances in computing power and exponential technology mean for the average Financial Adviser? How will our profession get eaten?

I’m sorry Mr Financial Adviser please pack your bags the robots are here to replaced you. It was fun whilst it lasted. The latest ‘buzz word’ in personal finance is ‘robo adviser’. It’s important to first clarify exactly what a robo adviser is. Wikipedia describes it as ‘a class of financial adviser that provides portfolio management online with minimal human intervention’. Currently I have not found one firm or organisation that actually provides automated advice. Advice being the key word. I know it’s possible, however I have not yet seen it. What I have seen is automated investment accounts. There are many companies around the world that provide such a service. The question is are they going to disrupt the cosy world of personal financial advice? There is a company who provides ‘investment portfolio advice’ for free, yes for free, the race to the bottom in relation to fees has been won, it’s literally free, with the custodian and ETF’s fee excluding. However the fee for creating and investing within the portfolio is zero.

The portfolios that robo advice firms create are very similar in terms of the portfolio construction. Low charging, globally diversified funds, predominantly ETF’s. What they create can be easily recreated within a packaged, risk graded investment fund. However as we know from history, intelligence or evidence does not sell investment funds. It’s marketing. The robo’s pitch is, we’ll do what your bloated dinosaur financial adviser charges you say 2% , we’ll do it for free or near to. As professional advisers we know this is not the case and the comparison is not fair.

Our value, which I feel strongly about, is working with clients on an on going bases and ensuring they achieve their financial goals. The biggest hurdle in the success of this is the client making big financial mistakes. Our role is to act as a financial behavioural coach. Experts in emotional and human biases. Most importantly spotting when clients are about to make mistakes, which if they are left on their own, they will. We also have empathy and are skilled at thinking as if we were the client.

The current development with exponential technology does not threaten this position we have. The fact that investment management is being demystified and opened up to the women on the street is great news to me.

I consider myself to be a bionic adviser. What is a bionic adviser? A bionic adviser understands that anything which can become binary i.e 0 1 0 1 0 0 will be disrupted by computers and the growth of exponential technology. Which is amazing and offers us fantastic opportunities. The bionic adviser creates an environment where both the computers and also the human excel. There isn’t a fight between them but harmony in each ones unique abilities. We require more firms to understand this and create platforms and solutions that marry the two together. I believe humans should do 10% of the work which adds 90% of the value. The computers should do 90% of the work which only adds 10% of the value.

Computers process information at lightning speed, they beat the human in most of the activities we have to complete as advisers. Those who know me well will know I’m a huge fan of financial forecasting software. Sophisticated financial forecasting software mirrors the environment in which we operate. So understands tax and financial rules. Which incorporate hundreds of variables and seamlessly integrates them. Humans can’t do this. We control the machine however all of the calculations and interactions are effortlessly worked out instantly by the machine. However we are still the experts.

The smart advisers (as is always the case) are welcoming technological advances with open arms. Allowing the robos to help where traditionally we lacked.

Be under no doubt that robos are disrupting this mighty profession, however this is a superb opportunity to outsource more of the boring mundane jobs that robo’s excel at and we human struggle with. I always want to embrace future mind sets and operating practises. Regardless of whether you believe it or not most of what we do can and should be automated. I do not see anything that cannot be automated in a modern financial planning firm. The only work we should be doing once the turnkey systems and processes have been set in motion is working with our clients in a live capacity on their personal financial plan and goals. Ensuring they get back to what’s important and continue to be disciplined investors and achieve their life goals.

Financial advisers have seriously complicated the area of personal financial advice. I know most don’t really understand their key role. It pains me to see IFA’s chasing new investment ideas/concepts/strategies that are being churned out by marketing departments of fund management groups. What are you doing. Completely pointless exertion of energy. You are a financial behavioural coach to your clients. Study after study has told you asset allocation and time in the market are key to investment success, don’t look busy to try and disprove this truth.

In the UK we only really have one robo adviser, I welcome new entrants. As soon as they allow professional money, which they have done in America. I’m sure there will be a large migration of assets onto these platforms. As the platforms in the UK are not fit for purpose at the moment, maybe one is. The humans are still instructing way to many trades, which ultimately leads to errors. I do know there are firms working on bionic propositions. Exciting times for the bionic adviser.