Impact Of Technology On Financial Advisors

Kolkata, November 10: In the last decade the financial services sector has been transformed with the use of digital technologies, something that falls under the broad umbrella of Fintech. In the space of investments, big data and artificial intelligence (AI) have been leveraged to create robo – advisory platforms which can offer investment advice with little human intervention in a cost effective manner. 

Naturally, this has been a matter of concern for the financial advisors, leaving them to wonder how technology will impact their profession. We all know that robots will eventually eat up manufacturing jobs (in fact, it has done so already to some extent) but could they also replace financial advisors? In a worst case scenario, would robots replace human advisor altogether? 

Fortunately, the answer is no. However, the industry is evolving in such a way that clients will be offered a mix of traditional advice and robo-advice. Financial advisors and robo advisors will thus, co-exist. 

One argument in favour of financial advisors is that they have been using computer-based financial models for a while now, so robo-advisors will not be a threat to them. The other is the aspect of human interaction between the advisor and the client. Even today, clients look for a face to face interaction with their advisor because it helps develop a relationship based on trust. After all, it is their hard earned money. Financial advisors should realise that human interaction is their strength. They should focus on this aspect of advisory, rather than selection of investment products. Also clients may find it difficult to understand the investment recommendations that are delivered through a robo-advisory model. Here is where financial advisors have an advantage. 

Every client is different. Even in case of clients with similar profiles, circumstances may vary widely. This would impact their investment objectives. Technology will not be able to gather such nuanced information in a reliable manner. After all, technology relies on mathematical models and algorithms, which beyond a point fails to factor in a client’s thoughts and emotions and a true picture of his situation. It cannot build trust-based relationships and give customised recommendations to a client. In the situation of a market downturn, technology will also not be able to provide assurance to anxious clients. A good financial advisor, on the other hand, can do this well.

However, one thing is clear. Financial advisors do not have a choice. They need to embrace technology or risk going out of business. Darwin’s ‘survival of the fittest’ theory applies as much to the world of financial advice as it applies to the natural world.  Financial advisors should view technology not as a threat but accept it as a tool that they can use to their advantage. 

That having said, the role of an advisor would remain the same. It would entail talking to the client to understand his financial goals, risk appetite and time horizon. Once they have gathered relevant information, both qualitative and quantitative, they can feed it into suitable technology tools that will throw up appropriate investment advice for the client and also aid in servicing the client on an ongoing basis. To stay relevant, financial advisors will have to integrate technology into the process of advising their clients. This will help them to enhance the value they offer to their clients, build on relationships with existing clients and also get more business. Financial advisors can thus use technology to give their clients a solution that offers the best of both worlds- the trust that comes with face to face interaction, combined with the accuracy and efficiency that technology brings to the table. 

The bottomline is simple - financial advisors need to use technology to save time, increase efficiency and provide cost-effective solutions to their clients.