Advisors have been using tools and technology for decades. Why, then, should the latest technology be any different? Robo-advice is no more than artificial intelligence (AI) technology[1] applied to financial advice. In contradiction to the thought that robos will replace the advisor, this technology can greatly enhance an advisor's practice.
This threat is only real if the advisor hands clients over to AI. Many advocates of AI offer a business model in which low-value clients are handed off to the robo. This is a recipe for disaster, because today's low-value clients have high-value family, friends and business relationships and probably will become high value in the future. At the same time, high-value clients are deprived of the benefits of AI.
The smart advisor will use AI but keep every client very close! There are a number of ways to keep clients close while taking advantage of AI. The advisor needs to understand the clients and help them to manage the AI. In addition to the occasional conversation, the advisor can help with interpreting the robo's questions, delivering and explaining the results and expanding on the product discussion beyond the boundaries of AI when appropriate.
Today's AI is still only as good as the information it receives. The technology lacks the intuition to interpret observations that only a human can make using our five senses. This shortcoming is critically important and requires a human advisor to accurately translate those observations into answers that AI can actually use. For example, in one short visit or even on a phone call, an advisor can recognize the intensity of aspirations, fears and concerns, can appreciate the client's situation at home or detect when important facts are being withheld. In the absence of intuition and multifaceted observations, ill-informed answers from clients can produce very poor outcomes.
Advisors who recognizes their own skills in these areas and then use the power and benefits of AI are likely to be very successful in the long run.
A successful AI-assisted practice will require three steps: appreciate the benefits, select the AI tool, and then integrate AI into current practices.
Appreciating the Benefits
Consider what the benefits are and how best to seize those benefits. Here are six big benefits for advisors from today's robo technology:
- AI produces better returns. There is no credible evidence that this is the case, but there is a widespread belief among consumers, industry experts, regulators and educators that AI is superior at making investment decisions. This belief is supported by the fact that an AI-driven chess playing computer will instantly beat more than 99% of all chess players! Advisors can use this belief in AI to their advantage.
- AI is compliant. Once proven to be compliant, the AI process can be relied on to be consistent and eliminate the day-to-day threat of noncompliance. This is true until there is a change, at which point compliance will need to be re-established.
- AI is scalable. When properly implemented there is no practical limit to how many clients can be supported by AI. There are, of course, human limitations to the servicing that is needed for clients.
- AI is fast. Unlike the human model, the AI computer can give virtually instant responses to the most complex circumstances. Advisors can respond to clients in seconds instead of days, hours or even minutes.
- AI is cool. Yes, there are bragging rights for advisors who implement their own methods into the AI. Imagine the same process that has proven successful for years being performed at the speed of light.
- AI maintains documentation. The recordkeeping that most advisors find burdensome and others absolutely hate can be remembered with relics like stock certificates and hand calculators!
Selecting the AI Tool
