Joe Duran

Duran Duranblog

Joe Duran

If a GPS app can fail, so can fintech

Indispensable advisers know how to overcome the three biggest pitfalls of technology

Oct 9, 2017 @ 1:33 pm

By Joe Duran

+ Zoom

I recently read an article from the Philadelphia Inquirer about an 18-wheeler that drove several miles down the pedestrian-only Boardwalk in Atlantic City. The driver was following instructions of his onboard navigation system which had the boardwalk designated as a street.

After passing several stunned onlookers, the driver found himself stranded and his tractor trailer had to eventually be dismantled and a berm built to get it off the boardwalk. In this case there were no damages other than confusion. It's an amusing story but also a great analogy in the dangers of trusting too much in technology, and why human judgment is so important even in a highly digitized world.

WHEN TECH FAILS

We've all become completely dependent on technology and have come to trust that it's reliable and accurate. However, if we trust it blindly then we are no better than a computer ourselves. Unfortunately, it sometimes lets us down, so it's important to remember technology's biggest failings:

One: Technology doesn't question assumptions.

Since the boardwalk was deemed a street, the software assumed the truck could drive down it. Software simply processes a set of assumptions. The calculations and analysis might be done correctly, but if the assumptions are wrong then the solutions will be wrong (the term GIGO was quite popular years ago: Garbage In Garbage Out). Our financial plans are built on assumptions that are almost certainly wrong.

That means when the theoretical plan meets the real world, we will need to make changes. Humans are best suited to figure out when assumption changes are appropriate, and to determine the right adjustments. Calculating the impact of those changes is perfect work for machines.

Two: Technology has no judgment.

The driver trusted his app more than his own eyes. No matter how sophisticated the programing, at the end of the day all software relies on data inputs. It cannot see, it cannot infer and it cannot imagine. Software simply processes information and spits out a solution. Ultimately, even if it's done in a lovely and friendly way, technology platforms are only aware of information currently in its data set, and nothing else. That means our role is to confirm whether what technology recommends is applied appropriately for each specific client situation.

Three: Technology cannot adapt when the unpredictable happens.

Even advanced software has no way of course correcting given a new set of circumstances that have not been contemplated. Artificial intelligence is seeking to make software more adaptable, but we are still years away from any computer suggesting appropriate changes that take into account the infinite circumstances that might affect a financial decision for any one person.

THE INDISPENSIBLE ADVISER

When working with our clients, we need to earn our fees by using our expertise and our experience to help them do what computers can't: question assumptions, use human judgment and adapt to unexpected surprises. Making the right changes in real world circumstances is invaluable.

We need to remind our clients that this is why they pay us. We can reinforce this in our planning process by analyzing "what if" scenarios that they probably were not considering. What if the markets don't do as well? What if someone gets sick? What if they live far longer than the current plan suggests? Not only will they have tangible evidence of our value, but they also will become accustomed to running a process when the unexpected happens.

Many folks might think they can save money by using an online, technology-only investment solution. This story can show the perils of that decision. That driver blindly trusted his software and ignored what he was seeing, driving three miles until he was stuck and there was no way out.

The stakes are far greater for people's financial lives. When things don't go as planned, will they notice soon enough? More importantly, when they need to course correct, where will they turn for help?

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

Events

Adviser marketing: 3 strategies for success

To help advisers sift through the noise and execute a marketing plan that will deliver the most ROI, three executives from Carson Group sit down with Shannon Rosic to deliver some strategies you can implement today.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

T. Rowe Price steps up its game to serve financial advisers

The Baltimore-based mutual fund giant is more aggressively targeting financial advisers with a beefed-up wholesale crew and placement on custodial platforms.

The most important tax changes for 2018

The Internal Revenue Service issued inflation adjustments to more than 50 tax provisions for 2018.

Shift to Roth 401(k)s 'highly likely' part of tax reform: former Treasury official Mark Iwry

Mandated contributions to Roth accounts would likely only be partial, as opposed to having a full repeal of pre-tax accounts.

E*Trade acquiring custodian Trust Company of America

Discount broker buying second-tier custodian for $275 million.

Another thousand Dow points higher, and investors yawn

Market milestones keep falling like dominoes, with 51 records broken so far this year.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print