Are Financial Advisors An Endangered Species?

Story written by Gil Weinreich at SeekingAlpha
So many trends seem to be conspiring against financial advisors. For example, the DOL fiduciary rule set to take effect in three months may potentially limit the volume of business they do - say, managing an IRA if it cannot be demonstrated that moving the assets from a corporate 401(k) is unambiguously in the investor's best interest.

Or take technology: The number of cheap robo-advisor solutions is only expanding, and it's not just fintech upstarts but big-name financial behemoths moving headlong into this space. Competition amongst advisors for clients who are open to their profession is of course fierce. Are financial advisors an endangered species?
On Friday, I included a link to a provocative article by Jeremy Josse, who made a parallel case that fund managers will go the way of bank tellers after the advent of ATMs. Advisors were not the focus of his article, but at least implicitly they are included in his argument.
Without a doubt, the automation Josse describes will challenge the advisory industry, as will the other factors I cited above. But I believe advisors will survive all these disruptions in part because of all the sophisticated solutions technology offers. That is to say that the plethora of information available today is enough to paralyze investors in their investing decisions or to overwhelm them with too much complexity, leaving them uncertain as to how best to proceed.
In that respect, the advisor becomes a sort of Sherpa guiding clients up treacherous investing peaks and valleys. Sure, many say that investing is not rocket science, and that's true. Yet once investors have tasted their first big losses they typically have a greater appreciation for professional involvement.
In this regard, I commend to your attention a fantastic article by Morgan Housel of Collaborative Fund who argues that "financial advisors will thrive in the coming years." I'd bet that among those gasping now are advisors themselves, beleaguered by all the doom they daily read about their profession.
But Housel analogizes from the experience of chess players, both human and robo. Grandmaster Gary Kasparov, who lost a match to IBM's Deep Blue, eventually started using computers to beat them at their own game. As Kasparov put it (I quote from Housel's article), computer-assisted chess enabled human players to "concentrate on strategic planning instead of spending so much time on calculations."
Guess what? That's exactly how advisors can use today's fintech wonders to help clients. Here's Housel:

"Most asset allocation can now be automated. But that doesn't mean financial advisors will be replaced by computers. Adding value as a financial advisor now means taking the computer's numbers and explaining them to clients in ways they understand, with equal parts technical skill and empathy. Holding their hands when the market is tanking. Offering context when a client tries to fight the computer's suggestions."

Sure, investing is not rocket science. But the same economy that demands a high degree of specialization in every industry leaves many who are drowning in today's info glut open to advice from those with specialized investment expertise, i.e. financial advisors.
Posted by: The Trust Advisor…


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