Innovation | 06.21.18
Pairing Robots And Humans, Banks Search For Balanced Approach to Advisory Services
When IBM's A.I. system, Watson, defeated two humans on the television quiz show Jeopardyin 2011 it marked a “wow” moment for both the scientific community and pop culture, leaving some to believe the rise of the machines was inevitable. A similar watershed moment came 14 years earlier when an IBM computer program, Deep Blue, beat Gary Kasparov at chess. However, Kasparov later discovered that a tandem squad of human players and computers could come to dominate the board game when playing versus a solo machine.
Banks likewise are realizing that the optimal approach to delivering advisory services can involve humans and robo-advisors. Vanguard's well-publicized platform, Vanguard Personal Advisor Services, begins with a customized, human-to-human consultation, rp> The latest bank channel player to announce a similar offering was Minneapolis-based U.S. Bancorp Investments. On June 20, the company announced its new Automated Investor offering. This was done via a partnership with FutureAdvisor, an investment advisory firm owned by BlackRock, and as a response to an increasing number of customers asking for "smart, easy-to-use and safe digital investment tools and strategies," Jeni Jonett, a bank spokeswoman, said.
“We are committed to serving customers where they are today and will be in the future," Mark Jordahl, president of U.S. Bank Wealth Management, said in a released statement. "And that includes embracing robust technologies."
Banks can’t afford to miss the technology train. A study by Business Insider Intelligence suggests that investment products and services that include elements of automation will advise on upwards of $4.6 trillion by 2022.
The most important takeaways to be gleaned from the rise of robo-advisers in recent years is an understanding that conventional wisdom about generational preferences doesn’t necessarily reflect reality, explained Kol Chu Birke, senior vice president of technology strategy at Commonwealth Financial Services, during a recent InvestmentNews FinTech Think Tank. "You have senior citizens really enjoying the Betterment experience just as they learned to enjoy Facebook, and you have millennials craving a human-guided financial advice."
When Human Touch Mattered Most
With the ten-year anniversary of the global financial crisis — among the most cataclysmic periods in financial history — approaching later this summer, many advisors will be reminded of how they personally calmed clients’ frayed nerves during tense moments as the markets cratered over the course of several deeply disturbing weeks.
"The clients of many traditional financial advisors stayed the course in large part due to their advisors talking them off of the proverbial ledge," Roger Wohlner, an Arlington Heights, Illinois-based advisor/blogger wrote recently.
These clients were far better off once the markets bottomed out in March of 2009 and began a rally that until recently showed no sign of slowing; meanwhile, investors who sold out at the bottom suffered severe losses and, sadly, in many cases, never got back into the market to recoup those gains, he said.
It’s possible, he and other industry members have stressed, that these two models, robo and human, might benefit each other. Ultimately, the investing public will be better for it.
Technology should improve the activity of financial advisors themselves, said Jonathan Straub, a founder and principal of AdvicePeriod, an RIA. "For instance, artificial intelligence can analyze trends and help advisors tailor advice to particular clients by identifying connections between investment behaviors,” he said. “That can broaden the range of clients with whom an advisor can work effectively."
Choice, convenience and flexibility are the hallmarks of consumer marketing. More clients seem to want the best of all possible worlds. Approximately 41 percent of households prefer a mix of live professional advice and digital forms of guidance, according to a 2017 survey by the research firm Hearts and Wallets, cited by Straub.
The investment portfolios within Automated Investor have been created by wealth management professionals and consist of cost-effective funds specifically designed to help clients work toward their unique goals. "Customers will now be able to have the [digital] experience with greater confidence as a result of working with a trusted institution,” Jordahl said.
As the world becomes increasingly digital, there will be more opportunities for in-person advice to align with robo-advice in an effort to suit client wants and needs. It’s just a matter of seeing to what degree financial advisors actually incorporate these services in the near term for longer-term client retention.
Rich Blake A veteran journalist based in New York City, Blake has covered the financial world for numerous publications, including Institutional Investor, ABCNews.com and Reuters. Blake was a co-founder and executive editor of Trader Monthly magazine. The Buffalo native is the author of three nonfiction books, including “The Day Donny Herbert Woke Up,” which is currently being adapted into a motion picture. In 2004, Blake was nominated for a National Magazine Award in the Reporting category for Institutional Investor.