The future is bright for financial advisers who embrace technology that will do many of the functions they perform today, according to Jud Bergman, chairman and chief executive of technology platform
Envestnet.
Successful advisers in years to come will instead focus on providing clients value from services like tax management, estate planning and even a bit of psychology, Mr. Bergman said in an interview on the sidelines of the company's Advisor Summit in Dallas last week.
These advisory firms will be those that make it across what he calls the digital divide. Making that leap will require advisers to let go of their fear of being replaced by technology and to recognize how it really enhances their human abilities, he said.
InvestmentNews: What do you see as the greatest challenge for financial advisers?
Jud Bergman: Like me, they are not technophiles. They have a challenge to cross the digital divide. Their traditional way of rendering services was not technology centric and that keeps them from a number of benefits that happen when they cross that divide. One is productivity. Today they're not growing as fast and they're not delivering the best product to their client.
By embracing integrated technology, and we're not the only ones that provide it, they are able to cross that digital divide and they're able to open up new markets that they wouldn't otherwise be able to serve. There's a whole new, developing investor who doesn't want quarterly meetings scheduled weeks in advance. The fundamental challenge is how does an adviser cross that divide?
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IN: Have you found an effective way to encourage advisers to embrace technology?
JB: No. What we have found is that we have a self-selection process; these tend to be advisers who say, "I want to have the benefits of a more technology-centric practice." Some are advisers who want to grow and have hit a wall productivity wise or with effectively responding to clients. They're looking for a solution and they may start with portfolio rebalancing, then move to performance analytics and CRM [client relationship management] and now more and more they are starting to adopt integrated financial planning into their wealth management platform. That's the next kind of boost.
As technology develops more, the traditional ways that advisers saw their value proposition has to evolve. Advisers who believe their value proposition is selecting mutual funds are going to have a very hard time convincing most savvy investors that that's a value worth 100 basis points. But they can look, instead, at their value proposition as an expert system for their client. That will be enabled with wealth management technology, but it has their service providers, managers, strategists, it connects all of that. The advisers who go into that ecosystem will find the technology does a lot of things they used to see as their value. That allows them to focus on tax management, estate planning and sophisticated goals-based planning.
IN: Looking five years down the road, what do you think will be the biggest difference in how advisers run their business?
JB: In 2022, it's going to be a wonderful world — at least from human potential being realized by this technology. That's why I like the wisdom and the insight of [
chess champion Garry] Kasparov. He doesn't say it this way, but the paradox of wealth management technology is that it actually enhances the human dimension. It doesn't detract; it's not one versus the other. I think in five years you'll find advisers have a very smart system they can operate within that connects the adviser with the client but most of the work is going to be done with that technology. What the adviser will focus on are life transitions, and behavioral psychological coaching and counseling. This is the value an adviser can really add: they can help in periods of transition or challenge. The tie with the adviser who has the right technology is that it enables them to be, in a way, more fully human.
IN: What's the biggest challenge for firms providing technology to advisers today?
JB: Being in the tech game means there are disruptors all the time, on all sides. Competitive dynamics are changing. What one day is our closest partner may tomorrow be a competitor, or as my daughter would call it, a frenemy. That's someone we still can do some business with, but who also at times will compete very effectively against us. One of the challenges is to stay abreast of the newest capabilities, features, functionalities, even architecture.
One of the more recent developments over the last five or six years is middleware that makes access to data and exchange of the data much more readily available; along with that are the APIs that enable that exchange to happen from one system to another. This is very powerful and a good thing for investors and advisers, but there are incumbents who are threatened by it — banks and insurance companies. So the tech is its own challenge; and if you embrace it and you work with it, then you find it creates other challenges, like incumbents who are threatened by it.
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IN: Where does the industry stand in terms of using artificial intelligence?
JB: The systems benefit from machine learning, and a lot of people talk about AI, but a lot of what people talk about as AI is not. It's sophisticated machine learning. My definition of AI learning is machine learning that can adapt to new questions. Machine learning has come a long way, but in our industry, we haven't crossed the threshold of where the machines are able to ask the next relevant question to solve. I don't know that it will happen in our industry in the next five years, but I think it will happen in the next 10. Even then, they won't be able to ask all of the questions, but they will be able to ask the simple questions.
IN: What kind of an impact does the Labor Department's best interest rule have on your business?
JB: Our business is all about the fiduciary standard. That's what we do. So to the extent that more advisers adopt that, there's more adoption of the Envestnet platform.
