Conversations about jobs—how they have been lost and whether they can be restored—dominated the public discourse in 2016. All signs indicate that this topic will continue to be important for the foreseeable future as well. While most of the discussion has focused on foreign trade and manufacturing, some estimate that automation will displace many more white-collar jobs than traditional blue collar ones in the years to come.
A report from the World Economic Forum suggests that 7.1 million jobs will be lost to “unprecedented” innovations in fields like artificial intelligence and robotics between 2015 and 2020. Of those 7.1 million jobs, over 70 percent will be concentrated office jobs.
Increased competition with robo-advisors
What are the implications for financial advisors? Is this a trend about which they should be concerned? Are the robots coming for advisors’ jobs? Much like the answer to so many questions in life, it depends.
Advisors who are nearing retirement can likely “ride their book of business into the sunset.” Younger advisors who are early in their career or those in the middle of their careers, however, are likely to feel some pressure from automation. These advisors may even see wholesale changes to their current career and livelihood. While some may point out that the frenzy over robo-advice seems to have largely abated (for the moment), advisors should not view robo-advice as the sole extent to which automation will change our industry.
In fact, the automation of risk profiling, account opening, rebalancing, and tax-loss harvesting is perhaps “child’s play” compared to what may be coming. Artificial intelligence, machine learning, and predictive analytics will do more to change the way consumers manage their retirement plan than automated investing alone could ever imagine. When combined, it leads to one rather obvious question: In 2020, will anyone still need a financial advisor?
I believe the answer is yes, but the reason may surprise you.
To illustrate why, I think it is useful to consider an example from the world of personal fitness to discover lessons for personal finance. Personal fitness technology—think Fitbit®—now allows the “layman consumer” to build a personalized nutrition and exercise plan, track their performance against that plan in real time using wearable technology, and automatically have all this data analyzed to help them improve.
The importance of human emotion
In the face of an automation uptick, how have personal trainers fared? The answer: Really well actually, and the reason why may hold some insight for financial advisors. It is because of the one trait or skill that no algorithm yet conceived of is able to replace — human empathy.
One of the fastest growing programming areas in personal training has been lifestyle coaching. This may well be the job description for the financial advisor of the future. An algorithm can tell you how much risk you should take in your portfolio, how much money you need to save to retire at 55, whether you are on track to get there, and even how you should spend you next dollar to increase your odds of reaching your goal.
While a robot can make you a plan, however, it cannot motivate you to stick to it. It cannot sympathize with the difficult financial decisions that all of face in our lives. Additionally, it cannot share in your joy when financial goals are reached. In the future, it will be the life coaches and advisors who adopt collaborative technology who bring the most value to their clients with the one thing technology alone cannot offer — a human touch.