How AI Will Change the Financial Advisory Landscape
The financial advisory business is facing an interesting shift. The question is, how will artificial intelligence (AI) affect financial advisors?
It's a topic many in the industry are considering, particularly in relation to financial planning. To provide context, it’s important to clarify that this discussion focuses on the practical AI currently implemented in businesses, rather than artificial general intelligence (AGI), which aims to replicate human-level intelligence. The best way to contextualize this change is to look at the landscape before, during, and after the introduction of robo-advisors.
Remember the robo-advisor boom about five to ten years ago? Many feared these automated platforms would completely replace human financial advisors. This concern hasn't materialized. Instead, robo-advisors have carved out a niche, primarily serving clients with simpler financial needs. The key takeaway here is that people still desire that human connection and assistance.
The robo-advisor landscape provides key insights into how automated tech might impact the financial planning business today and in the future. Many robo-advisory firms are adapting their models in order to account for a very important human element.
Robo-Advisors: A Closer Look at Current Trends
Robo-advisors haven't taken over the financial world, and that is important to realize. They are, however, providing an important service. So, what are robo-advisors finding? Once an account value hits around $70,000 to $75,000, clients start pulling their money out and moving to a live financial advisor. Why? Because as their financial situations grow more complex, so too does their need for human insight.
There's a lot of conversation and decisions that come up in someone's investing career that go beyond simple asset allocation.
This isn't to diminish robo-advisors, but to give the full perspective. Remember, for those younger investors renting an apartment and contributing to a 401k, a robo-advisor can absolutely get the job done.
However, human interaction is still essential. It also takes brains to be able to read people and you need to be smart about human psychology. So, robo-advisors are now working to hire as many CFP (Certified Financial Planner) professionals as they can to work at a call center. Why? That way when clients have financial planning questions, they can talk to someone and get those questions answered. So, to Recap, robo-advisors can’t replace human advisors, but they do enhance the industry.