Joe Duran

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Joe Duran

How technology will alter the role of human advisers in wealth management

Our jobs will be to optimize financial lives by applying our human perspective, our hearts and our intuition

Apr 20, 2017 @ 12:30 pm

By Joe Duran

The hangar at Singularity University
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The hangar at Singularity University (Joe Duran)

A small group of us spent a recent afternoon with the chief evangelist at Singularity University in Silicon Valley. The campus is fittingly housed on a NASA site under the shadow of a huge unused hangar once used to store blimps.

Their classrooms contain every variety of technological gadget you might imagine, from 3D printers to various types of virtual reality goggles. It's all interesting, but far more fascinating is their perspective on how technology will alter the role of human work, especially in wealth management.

THE INESCAPABLE FUTURE

"The greatest shortcoming of humanity is our inability to understand the exponential function," renowned physicist Albert Allen Bartlett once said.

It's easy for us to imagine how far 30 steps will take us (about 30 yards), but it's next to impossible for any of us to imagine how far 30 exponential steps will take us (25 times around the earth).

Technology develops at an accelerating (or exponential) rate. That means we humans cannot fathom the far-reaching implications of technological advancement.

(More: How to make the most of human and robo-advice)

Let's look at computer processing power. Processing power is measured in teraflops. In 1997, the ASCI Red was built for the U.S. government by Intel to calculate weather forecasts and the impact of nuclear fallout. The world's fastest supercomputer at the time had 1.7 teraflops of computing power. The machine filled a room and cost $55 million to build. By 2006, the Sony Play Station 3 had 2.1 teraflops of processing power, fit comfortably on a shelf and cost just $499. Today you can buy an Xbox One with 6 teraflops (more than three times faster) for $299 or even a Pi Zero computer that is the size of half a kiwi, and costs a measly $5.

Once any process gets digitized, exponential evolution compresses price, size and power at warp speed. DNA sequencing cost $2.7 billion in 1999, $350,000 in 2007, $1,000 in 2014 and will be free in the not-too-distant future.

WHY IT MATTERS

Digitization ultimately makes anything code based commercially viable at costs close to zero because variable costs for processing are negligible. It is inescapable that managing money, something machines can do very efficiently, is on a race to zero. Index funds and factor-based ETFs are great examples of that. Soon it will be true for basic goals-based planning, and eventually (much sooner than you might imagine) for more advanced planning as well. That begs the question for anyone in the wealth management business: What's a human adviser valuable for if planning and investments are on their way to being free? Perhaps the answer is less in our brains and more in our hearts.

(More: 10 surprising adviser tech trends)

1. Understanding. Our value is in helping people grasp consequences and make the right decision when they feel overwhelmed. It's living in the space between rational choices and emotional reactions. It's subtleties like knowing whether a client is saying "yes," or "kind of," or "I'd rather not," when they nod their head. Being relevant requires understanding our clients better than anyone else and helping them optimize their decisions around their entire financial lives and making them feel good about how their financial lives are unfolding.

2. Discipline. We are all creatures of habit. Computers might be able to track when you are off course, but they aren't going to hold you accountable, manage the messy complexity of human application of ideas and ensure you make the right decision. That is the something only humans can help other humans do. It is where our industry must live to be relevant.

THE BIONIC FUTURE

Ultimately we are all going to rely heavily on technology to perform the routine work of managing money, decoding financial plans and pretty much anything software can do more efficiently than us. Our jobs will be to optimize financial lives by applying our human perspective, our hearts and our intuition in the choices our clients make about their entire lives in an engaging, technology-powered way.

(More: To serve millennials, advisers must adjust not only fees but their mindset)

That hangar used to house the future of aviation, but we humans didn't account for how quickly technology would make it obsolete. It's now a national historic monument.

Joe Duran is chief executive of United Capital. Follow him @DuranMoney.

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