The financial planning world is in a state of change, as the rise of the digital age begins to exert its impact upon the profession. Thus far, trends have included the shift to outsourcing, the rise of web-based software, and a growing number of planners using services like GoToMeeting and Skype to supplement face-to-face meetings with more virtual interactions. As the coming decade wears on, technology will play an increasing role in the financial planning world, driving change in everything from how we deliver services to the client experience. Nonetheless, while technology will continue to augment financial planners, it will never replace them, for one simple reason - real financial planning solutions require clients to implement recommendations and make changes in their lives, and there are few forces for behavior change more effective than the accountability of another human being. Which means, simply put, as long as we are human beings and our brains operate the way that they do, effective financial planning will require another human being at the other end of the relationship, especially in times of stress and when we need an outside perspective. Technology alone may give clients the answers... but the fact that we all don't get the right amount of exercise, eat a perfect diet, and take all the other steps necessary to become optimal human beings, makes it clear that technology delivering information alone will never be the solution.
The inspiration for today's blog post is some feedback I
received on my presentation "The Future of Financial Planning in the
Digital Age" which I delivered last week at both the FPA Retreat and NAPFA
National, and was subsequently covered by both Investment News and Advisor One.
During the session, I explained - as I've discussed previously on this blog -
that the future of financial planning will look very different, as technology
not only supports the delivery of planning, but also reshapes how financial
planning firms grow as geographic barriers break down.
The key distinction is that planning in the future,
supported by technology, will allow advisors to meet with clients and deliver
value, without even being face-to-face with them. It does not, however, suggest that
advisors will be replaced by
technology, for one simple reason: clients are human beings.
The Difficulty Of Change
Despite the evolution of our brains - and to some extent, because of it - changing behavior is difficult and complex for us human beings. As research by
Prochaska has shown in his book "Changing
for Good" (and others have repeatedly shown as well), taking the necessary steps to improve our situation often requires far more
than merely having all the facts, and knowing what the technically correct
course of action should be. If it were that simple, the country's problem with
obesity would be solved: just explain to everyone that they just need to eat
less and exercise more, and watch everyone's weight drop to the ideal level.
Of course, change is not impossible; there are people who can
and do take the steps to improve themselves. And as research by Robert Cialdini
in his book "Influence:
Science and Practice" has shown, one of the most effective systems for
helping an individual to change is to make him/her accountable to another human
The Importance of Human Interaction
Research has shown that as human beings, we have a strong inclination
to appear to others that we're being consistent in our words and actions. As a
result, if we commit to a position publicly, we are often loathe to be seen
changing the position later. For instance, a study by Kerr & MacCoun
(1985) found that when once jurors state their initial views on a case
publicly, they are reluctant to allow themselves be seen as changing their position in public;
consequently, in a close case, a hung jury is significantly more likely if
jurors are required early on to express their opinions with a visible show of
hands rather than a secret ballot.
In a similar context, organizations that support people
trying to lose weight have found that requiring someone to commit to a weight
loss goal by writing it down, and showing
it to friends and family, can be effective even when virtually all other
techniques have failed. Exercise programs have similarly found that encouraging
participants to pair up with a buddy - with a mutual commitment to meet at a
certain time to complete an exercise routine - makes both people significantly
more likely to actually follow through on the commitment, neither wanting to be
seen disappointing the other. This accountability through social dynamics is also
one of the driving factors for why personal coaches are often so effective to
help people implement change in their careers and lives, and why Alcoholics
Anonymous encourages members to find a sponsor - a fellow alcoholic trying to
maintain sobriety who can help keep the person accountable.
Why Technology Alone Will Never Be Enough
The social dynamics involved in change - and the inability
of most people to effectively change without social support - is the primary
reason why financial planning will never be successfully delivered by
technology alone. Because simply put, we will never hold ourselves accountable
to technology and "a machine" the way that we do with another human
being. We are social animals. It's simply the reality of how our brains are
Otherwise, we'd long since have created a website or
technology tool that allows alcoholics to enter drinking habits, and get advice
on how not to stay sober. Or enter details about what we eat and our physical
activity, and get advice that we could immediately implement to get us to our
ideal body weight. Similarly, just entering our financial information into a
website, to get the factual details about how we should change our spending
habits, save more, or invest differently, will not alone be enough to bring about
meaningful change for most people.
The "just give them the information" approach will
work for a few, who - at least in this regard - can merely gather factual
information to determine a course of action and effectively implement it. And
it can be a reasonable approach for relatively simple tasks or issues, that are mostly
driven by a factual question to be answered and not a major behavioral issue to
change. But it won't work for most people on their real financial challenges,
any more than knowing we should eat less and exercise more gets everyone to
their ideal body weight.
And that's before we account for the research that also shows we are often so biased in looking at our own problems that we can't even see the real problem and the path to a solution, which is why seeking the wisdom of an outside perspective on our problems has been observed in societies around the globe for several millenia.
In Times Of Stress
Of course, the kinds of change we've been talking about so
far are the proactive measures someone might take to get themselves on a better
course, when generally surveying their personal situation. It does not yet address the secondary issue associated with change:
relapse, or more broadly, how we act differently in times of stress, when the
dominant portion of our brain is not the rational, logical, thinking part but
instead the irrational, emotional, biased and shortcut-prone part.
In times of stress, social support can be more important
than ever, and it brings a new context to the social dynamics around behavior
change. It's the reason for the late-night call to an AA sponsor. Or the
support of a weight-loss buddy. Or the intervention of a coach or mentor to call out a
And as any experienced financial planner knows, intervening
in times of stress can be incredibly important for clients, whether it's guiding
through expert financial decisions after the death of a spouse, or during a
market panic, when clients are - to say the least - not always thinking with
the rational, logical part of the brain. Soothing though Siri's voice may be to
some, our iPhones are not going to talk us off the ledge when we're in a
financial panic or an emotionally distressed state.
How Financial Planning Will Change And Stay The Same
As a result of these natural human dynamics, the next 10
years in financial planning will not be about the replacement of financial
planners with technology, but the augmentation of technology into financial
planning to deliver
an improved experience, monitor
the plan more proactively, and overall bring about more effective
implementation and behavior change.
Companies that use technology to improve the quality and
efficiency of their process - like Personal Capital and LearnVest - will thrive
if they can find an effective balance between real financial planners and the
technology used to support them, while technology companies that seek to completely replace and eliminate the
advisor - and even overtly bash them in public, like Betterment and FutureAdvisor - will suffer from a lack of client
follow-thru, clients that bail out when markets become turbulent (and there's no one to talk to), and for those clients who are driven enough to do it themselves (especially regarding investment portfolios), tough competition not from advisors
but the likes of Charles Schwab and Vanguard.
This is not to say that all financial planners do everything
right. There are numerous conflicts in the advisory space, and even if (or rather, when) a
uniform fiduciary standard is implemented, the
planning profession will quickly find the challenge of competence (or lack thereof in some cases) matters
as much as fiduciary principles.
Nonetheless, as long as human beings need help
with their money, and to get an outsider's perspective on the problems their brains just won't let them see for themselves, and to implement products and solutions to change and improve
their financial behaviors, financial planners will always have a role to play. It's just our reality as human beings.
So what do you think? Will financial planners someday be
replaced by technology, or does the fact that it's a human being on the other
side of the relationship ensure the planner's relevance? How do you think
technology will change the delivery of financial planning in the coming years?