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.

6 strengths of elite advisers that clients may perceive as weaknesses

Regardless of how well we think we’ve trained our clients, they will still make most of their decisions on emotion over logic. We suffer from this when we make decisions in other realms of our lives. However hopefully we show fewer biases with our money management and our skills in achieving financial success.

In this article I will be sharing my thoughts on the strengths that elite advisers demonstrate which some clients may deem as weaknesses. As most mature money management and financial strategies are counter intuitive and against conventional wisdom. Modern media and access to ‘free’ information is maybe our biggest threat and our client’s most destructive influence. If you disagree with my list, write your own, it’s a good way of identifying where our strengths lie.

The sole purpose for my professional existence is to ensure my clients don’t blow themselves up. The world is full of financial landmines and we are our own worst enemies. We all know that clients are the biggest wealth destroyer of all and we don’t manage money (anymore) we manage people. However the client in front of us thinks we’re managing his/her money, when really the majority of my focus is in managing them. So let’s delve into the skills that may be seen as weaknesses.

1: Not reacting to current news.

You don’t need me to tell you that we are now bombarded with ‘news’, which I call Negative Events World Service. 24-hours news and sensationalist journalism are the enemy to financial success; never forget this. The media moves from one crisis to the next. We are never crisis-less. I know there’s a lot happening in the world. However companies will still be making things which people buy. Our clients mistakenly think we should be continually reacting to news and making decisions based on this. We know the truth (which is eternal) about managing money and clients, whereas the media just know news. Clients will mistake our lack of concern, with a lack of competency. Over time, 5 years+ they will start to see our wisdom and appreciate it.

2: Making very little changes with their portfolios.

We all know money is like a bar of soap, the more you touch it the less you have. Timing markets is a fool’s errand and predicting market swings is the preserve of the crazies. Misinformed clients emotionally may feel joy in an adviser continually tweaking their portfolio and what they’re invested in. The elite adviser knows the only sure indicators to long-term success (performance) are discipline and costs. Frequently picking outperformers in advance is impossible. Your lack of ‘action’ maybe perceived as a weakness but actually, it is one of your strengths.

3: Being ecstatic during periods of negative volatility.

If you’re a long-term investor, which means you have monthly automatic savings set up into the markets, you should have a smile from ear to ear during temporary (they are all temporary) market downturns. It could actually be argued this is the whole reason why you’ll be exposed to superior returns. It’s because you were disciplined during periods of low asset prices. The only item clients actively pay over the odds for are investment assets. They love sales in every other area of their lives yet they hate investment sales. The stock market offers, January sales, Easter sales, Black Friday, the lot. A tiny minority understand the impact of these. How many times has one of your clients said, ‘I’m loving the temporary market declines, I’m getting a lot more bang for my buck’.

4: Spending as little time as possible discussing investment performance.

We know lifetime financial success will be determined by behaviour and not making big financial mistakes — there are too many of those to list in this article. I aim to talk about investments for approximately 5% of my client planning meetings. As this is how much impact a ‘portfolio’ has on lifetime financial success. How much you save is far more important. What you want to achieve and when has more impact. Why would you want to spend any longer discussing the past and also something that is fundamentally out of our control? Some client’s will think that ‘investment performance’ is the main driver, so if you spend little time on this they may think this is a weakness. We are here to deliver uncomfortable truths and not comfortable lies. Performance chasing is like a patient going to see a doctor for more drugs. The doctor knows that the patient’s lifestyle is likely to have a far more profound effect on their health than the drugs that are prescribed. Rather than prescribe yet more drugs, the answer is exercise more, eat better, quit excess drinking and stop smoking, these are the route cause of the issues.

5: Always focusing on the future and spending little time worrying about now and the past.

We forget how skilled we are at thinking about the future (most people can’t process their future self). As I say to most of my clients, the 62-year-old sat in front of me is not my client. It’s the 92-year-old you’ll become in 30 years. I’m also not really bothered where they currently are, when we first meet. This is a snap shot of time; future planning is what I’m concerned about. They may perceive our lack of interest in their current position as concerning, when really it’s a mature skill.

6: Not having and immediate answer when asked a question.

Clients ask many questions, which is great as it shows they’re engaged. Some we can answer there and then, hopefully without boring them too much with the mess that is financial services. However some questions are too tough to answer on the fly, as they’re hyper complex. This can be expanded to all areas of life, you should be wary of someone who can answer any question without missing a beat. They’re either a genius or a fool, usually the latter. Intelligent people can often be heard saying ‘I don’t know, I’ll need to look into that’, I like to hear this as it shows humility. Those who least need help, seek it. Humble people often seek help, which is encouraging. Some clients however may think this exhibits a lack of knowledge, when in actual fact it’s to the contrary.

Financial Advice is a noble profession; it’s hyper complex, full of emotion and continually evolving. We have to manage our client’s behaviour and emotions.

If you do what your client tells you to do you are perpetuating bad behaviour and you have lost, no question. You need to stop giving your clients what they want and be ruthless in giving them what they need.

This may result in uncomfortable discussions, maybe even clients leaving you. However being professionally authentic is crucially important in reaching the top of this mighty profession. I still have a lot to learn and I certainly don’t have all the answers, however I am ruthlessly aware of the biases which accelerate bad behaviour, we all need to train our bias bells and be ready to address them once they go off.