Let’s imagine you’re running a financial planning business five years from now.
You can generate a tailored plan for your clients automatically. You have software that figures out what advice to give, given the constraints of the client’s goals, and also generates best and worst case scenarios. There’s no data entry involved, because you have software that plugs directly into the client’s bank accounts. And it takes seconds to generate.
At that point, how does one financial adviser differentiate their services from another?
Most of the industry says the answer is goals-based advice. Software can’t help a client figure out their goals, goes the argument, so what separates one adviser from the other is how empathetic they are. In other words, you’ll continue to have a business until a nicer person opens up nearby, at which point you’ll have no option but to commit murder and/or become an accountant.
But there’s a problem with this approach. Goals-based advice needs clients that a) have goals, and b) have a reliable income stream, part of which can be used to reach those goals. That is, financial advice is for people who have most of their life sorted out, and just need a bit of help tinkering round the edges to optimise their savings.
Unfortunately, there may be fewer people like that in the future.
The robots are coming – but for whom?
We’ve all heard about robots replacing our jobs, but it can be hard to appreciate how soon that might be. For example, here’s a few of the things that happened just this month (May 2019): Lyft launched a commercial taxi service that doesn’t have human drivers, Brickworks launched a wall-building service that uses robots rather than human brick-layers and does 2 days of work each hour, and the Independent published an article declaring we’re now in the age of the fully autonomous farm.
That’s three industries where the labour force suddenly doesn’t have a reliable income stream any more. In fact, you could argue that the only reason there are still jobs there at all is because no one from sales at the robo company has called their boss.
And it’s not just those industries. Economists believe that the same thing will happen to a variety of white collar jobs, right in the heart of an adviser’s client base. In fact, they estimate that within ten years, automation could replace between a third and a half of all human work.
There are debates as to whether this will lead to mass unemployment or merely mass retraining. But in either case, many people will find themselves needing to rethink their lives. And that’s where advisers can come in.
Goal setting under these sorts of conditions is different to the sort of goal setting advisers do at the moment, because more areas of a client’s life are up for grabs.
For example, in a city as expensive as Sydney, where the median rent is 47 per cent of household income, a family who has lost their income will need to figure out where to move, and will want advice on which cities have the best opportunities for their skill sets. They’ll want advice on the shortest path to their next career given what they can do already, and where they can go that’s cheap enough to live but has the most demand for the work they can do.
Income drives lifetime results
Some may argue that this sort of thing is beyond the scope of what financial advisers can help with. But the role of an adviser is to help their clients be in the best financial position they can, and above a certain level, income correlates highly with lifetime wealth creation.
Others argue that financial advisers don’t have the expertise to give advice on navigating to a new career. But new tools are already being developed to help with this. For example, Burning Glass already collate labour market data and can tell you what skillsets are in demand in what places, which could make it easier to find the most financially optimal place to live.
And academics have used deep learning to figure out what parts of a city are most like Paris (or any other city you want to compare to). If these tools get commercialised, an adviser could bring a hard-nosed financial perspective to help their client find the perfect spot to live anywhere in the world while developing their next career.
In other words, once robo-advisers take over the technical parts of planning, the battle for market share will be based on how broad the advice can be, and how much value it adds. Income advice will be the next frontier. Particularly in the age of automation.