The financial adviser's role is about to change. Within a decade, they may not be needed for many of the traditional tasks that they routinely perform for clients.
No one will need them to write a financial plan, balance a family budget or even provide investment advice.
Retirement planning? Think again.
Online tools aimed at helping people manage their money, increase their personal wealth and decide when to retire will take over these tasks from advisers.
Consider just one of these services: preparing a financial plan.
These staid documents will be replaced by interactive financial planning software that illustrates progress toward different goals using real-time market conditions. Plans will evolve by the minute to accurately reflect clients' current status in order to guide them more precisely toward meeting their goals.
Investors also won't need help with buy-and-sell decisions, as online managers will recommend cheap investments and even alternatives that fit an individual's risk tolerance, time horizon and personal preferences.
Quarterly reviews? Why bother when clients will have the electronic tools to immediately see their progress toward different funding goals, such as college savings, charitable donations and retirement.
“Those advisers who cherish the concept of sitting around a kitchen table each quarter talking about asset allocation are going to find themselves diminishing in utility over time,” said Brian Hamburger, founder of MarketCounsel. “The adviser's ability to embrace technology that increases the level of engagement with the client is going to rule the day.”
Dozens of online advisers, such as Betterment, FutureAdvisor, Jemstep, LearnVest, Personal Capital, SigFig and Wealthfront, already offer a low-end, high-tech approach, some of them incorporating human advisers, others not.
But today's technology is nothing compared with what is coming over the next 10 or 20 years. It will do many of the tasks advisers do but will include comprehensive analysis that only a computer chip could pull off and without the all-too-human frailty of emotional decision making.
Advisers will be challenged to define their usefulness as data analytics continue to advance, said financial futurist Jim Carroll.
“The sophistication of the platforms available will only continue to increase,” he said.
Consider a firm such as Yseop Inc. (pronounced “easy op”). It not only interprets large volumes of data taken from multiple platforms -— read: Big Data -— but it presents the results in an understandable fashion. Its artificial-intelligence and natural-language-generation technology write personal recommendations and reports in English or other languages, depending on the user's situation.
Another firm, Narrative Science, also uses artificial intelligence to discover insights that the best human brain couldn't discern.
These and other young tech companies are developing “smart machines” or “thinking machines” that tech experts predict will be disrupters in many industries, including financial advice. And all these services will be delivered and accessed remotely without requiring a trip to the adviser's office.
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“We're still in the early innings of how the Internet is going to change how we do business,” said Michael Kitces, director of research at Pinnacle Advisory Group.
Today's online approach to personal finance is especially popular with the generations of investors who have grown up with the Internet and the mass-affluent market, which largely has been ignored by advisers. But the potential market for web-based advice is growing and overlapping that of traditional advisers.
A recent Cerulli Associates Inc. study found that assets in direct-to-investor platforms have almost doubled since 2008, the growth of which is surpassing adviser-intermediated assets.
“Formerly considered the tool for do-it-yourself investors, these firms now provide a suite of services to investors across wealth and service tiers, providing legitimate competition to their traditional advisory peers,” Roger Stamper, senior analyst at Cerulli, wrote in the study's release.
Venture capital firms, which have invested about $100 million in today's online advice platforms, expect that tech innovations will create a future offering so good that wealthy investors will be lured in, too. The fee transparency of online advisers is pressuring the advice industry as a whole to make costs clearer to clients.
“Some wealthy investors think they're paying too much today,” said Steve Harrick, general partner of Institutional Venture Partners, an investor in Personal Capital. “They trust their advisers, but that trust starts to erode when they find out they're paying them 2% of their assets.”
Raef Lee, research director for SEI Advisor Network, and other experts think that all advisers increasingly will be pressured to highlight their fees and other investment expenses openly, perhaps on their websites.
“We are going to see advisers change the way they operate because of these companies,” he said. “Advisers also will have to have better technology, not just fancy offices.”
Grant Easterbrook, a Corporate Insight analyst who studied more than 100 firms with investment and personal-finance technologies for a recent report, said that he is surprised that advisers are still resisting the pressure to clearly state their fees and that most advisers aren't giving clients real-time performance-tracking tools.
“Clients want these two things, and advisers can't resist them for too long,” he said.
Mr. Easterbrook identified 10 categories of services online financial firms offer, including algorithm-based investment advice from sites such as Jemstep Inc., trade mimicking from firms such as Covestor, financial planning and budget tools from firms such as Planwise, retirement-plan-specific advice from firms such as Kivalia Inc. and customizable exchange-traded funds such as those at Motif Investing Inc..
Many advisers aren't recognizing the competitiveness of the so-called robo-advisers of the future and are counting on their histories and current connections to forever forge relationships with clients, said JP Nicols, chief executive of Clientific.
“You don't have to have been founded before the Civil War with photos of marble columns in your logo to denote strength and stability,” he said.
But technology doesn't have to be the enemy of the adviser.
KEY TO SUCCESS
How the rise of digital advice represents an opportunity for advisers
It can also be the key to their future success, experts said.
Advisers looking to succeed in this not-so-distant technological future will have to be skilled at deploying systems with clients who want help, and they will need to offer value that can't be computer generated. Trust and the personal relationship will play a greater role in success.
“Advisers have to be prepared to deliver more than what can be commoditized,” Mr. Hamburger said. “How much you trust your investment adviser is going to be the new measure of investment advice value.”
Business author Daniel Pink told advisers at the Financial Planning Association's national conference last month that financial professionals of the future will have to be skillful at finding and identifying problems that clients don't know they have, “because they won't need someone to find them a cheap ETF.”
Strategic planning and life planning are likely to be the focus for successful advisers.
Some adviser consultants contend that focusing on a specific group of clients, or niche, will create inherent value for those clients.
Only about 15% of advisers are specialists, according to a recent Cerulli study.
Adviser Tim Shanahan, chief executive of Compass Capital Corp., said that he understands that technology will overtake the adviser in terms of “the math.”
But advisers will always be needed to add the sometimes illogical but correct custom advice for a client, such as recommending a move to cash for a client so stressed out about their equity or other investments that they are losing sleep.
“When the world implodes tomorrow, you can't talk to a website,” Mr. Shanahan said. “You're going to want to talk to me and get some hand-holding.”