The Promise of Technology

Every financial advisor wants to better serve his or her clients and help them achieve their financial goals. To that end, advisors are increasingly incorporating new and exciting technological solutions that improve client service. From better visualization tools, to automated processes, to greater options for customization, technology presents a number of distinct advantages for advisors.

Yet while these resources are helpful in a variety of ways, they are most effective when they are used as a complement to the advice an advisor provides – in particular in the area of understanding and managing investor expectations. Advisors who leverage technology to help investors make decisions that are not reactions to any particular market environment and, instead, take into account underlying financial goals are in the best positon to deliver positive outcomes for their clients.

Before advisors can leverage technology to assist their clients, they need to develop a firm understanding of investor biases and perceptions. Luckily, as a profession, we are becoming much more adept at identifying the mindset of the investor due to advances in behavioral finance theory. In fact, research shows us that investors often act irrationally when making investment decisions, and that they react in predictable ways. For instance, we know that when evaluating portfolio performance, investors tend to most clearly recall moments of extreme growth or decline and rarely have a sense of the average performance. This type of skewed or incomplete perspective can lead investors to make unproductive or harmful investment decisions.

One effective way to address such biases through technology is to leverage visualization tools that make it easier for investors to understand how their portfolio will perform in a number of market environments. With the advent of online and virtual portfolio construction tools, advisors, and by extension investors, can model how certain investments will perform over time, in times of both market volatility and growth.

For instance, at AssetMark, we recently launched a PortfolioEngine tool, which gives advisors the abilityto build customized portfolios and test their performance under a number of scenarios. Other tools enable advisors to build personalized benchmarks for investors, showing how their portfolios performed compared to similar indexes, as opposed to unlike indexes that might lead to unjustified conclusions about performance. Utilizing technology in this way empowers advisors to engage in transparent conversations with investors about what they should expect and the amount of risk they are willing to absorb given their long-term financial goals.

While the technology of automated investment tools adds tremendous efficiency, the best advisors apply it in a way that takes into account investors’ underlying goals. The principal value of automation is that it enables advisors to quickly and efficiently select and communicate the relative merits of investment solutions and how those solutions align with an investor’s goal and capacity for risk. Once advisors know what their client hopes to achieve, they can then leverage the power of automation to help them select investments that have the potential to achieve those goals.

Regardless of the type of technology advisors use, they can never lose sight of their client’s ultimate long-term goals. At the end of day, everything an advisor does and every piece of technology he or she uses must tie back to those goals and what the client needs to feel successful. New technological methods can also be used to track performance relative to those goals, step by step.

Overall, technology is a key component and a positive development for the financial advising industry, as it gives advisors new tools to serve their clients. However, technology is most effective when it takes into account investor expectations and biases and, at times, helps investors understand and cope withvery understandable human reactions and expectations. In this way, technology can facilitate critical, goals-oriented conversations between advisors and investors that will lead to long-term success.

Natalie Wolfsen is Executive Vice President and Chief Commercialization Officer at AssetMark, Inc. @AssetMark.