Wall Street Need Not Fear the Robots

Could you beat a robot in a job interview? It’s a scenario that, if you haven’t faced already, could very well be on the horizon. Recent studies have highlighted the financial industry as a sector that’s particularly at risk of automation.

Not everyone, though, is preparing for the robot apocalypse. Asked recently about the threat of artificial intelligence putting people out of work, Treasury Secretary Steve Mnuchin replied: “I think we’re so far away from that it’s not even on my radar screen. Far enough that it’s 50 or 100 more years.”

The Treasury Secretary’s comments may have been intended to reassure Main Street, but he should take a closer look at Wall Street. Already, a group of low-cost robo advice platforms including Betterment and Wealthfront have amassed billions of dollars in assets under management. Some larger advisory firms and asset managers such as Bank of America Corp BAC, Merrill Lynch, Raymond James Financial, Inc. RJF and UBS Group AG UBS are following suit and have begun rolling out their own digital advice offerings.

It’s not hard to imagine a near future where a generation of investors who have been reared on a diet of mobile technology and DIY applications are as comfortable allocating their retirement portfolio online as they are shopping for light bulbs on Amazon.com, Inc. AMZN or surfing for a date on Tinder. They have become accustomed to the accessibility and efficiency of conducting so many of their daily tasks online and will expect, nay demand, a similar investing experience.

That’s not to suggest that the human advisor will be wiped out by robots. Investors will always want the kind of personal touch that algorithm-based programs currently can’t match. That’s especially true for investors at the high end of the market. But there are increasing forces that wealth and asset managers simply can’t ignore.

Fees are already dropping across the industry, and that trend will only accelerate with the rise of digital advice. What’s more, clients are demanding more transparency around costs and seeking a higher quality experience. If their advisor won’t make this a priority, they have no problem taking their money to someone who will.

In the face of this digital revolution, advisors have one viable path: embrace technology and adopt the “e-advisor” model. In combining the best of both worlds, e-advisors enhance their investment expertise with technology to provide a simple, responsive, accessible customer experience. That means using data aggregation to give clients a complete picture of their financial health. And it means providing clients with a mobile app to access their portfolio.

The transition to the digital age of investing will require advisors to make investments in front-end and back-end systems, but in the long run it will reap dividends for them and for investors alike. E-advisors can increase their margins by automating time-consuming manual tasks which lower internal costs and generate bandwidth to take on additional clients without hiring staff.

They can create more time for the kinds of sophisticated and emotional conversations with their clients that robots can’t replicate. And by combining these conversations with data, e-advisors can have greater insight into their clients’ financial health and habits.

For the investor, the shift promises to be even more significant. The growth of low-cost digital and robo advice platforms will lower the barriers to entry and democratize investing for the masses. A new population of investors who couldn’t previously afford personal financial advice will suddenly be in play. That, in turn, will create an exciting new market opportunity for advisors and wealth managers who have the foresight to capitalize.

So how can advisors get up to speed? At the top of the list is enhancing the client experience with user-friendly front end platforms that provide clients on demand information and analysis. These platforms must provide the same convenience that consumers already expect from the myriad of apps they use and trust in their daily lives.

The industry needs to take its cue from Amazon or Uber or even Tinder. In their own way, they each successfully disrupted traditional business models by harnessing the power of technology to become more efficient and more responsive to consumers.

The robots have arrived on Wall Street and are growing in numbers. Rather than resist – or worse, ignore – the incursion, advisors need to welcome them with open arms.

William Capuzzi is the CEO of Apex Clearing, an independent, full-service clearing firm that has become the custodian of choice for digital advisors.

Posted In: Financial AdvisorsFintechHedge FundsOpinionTop StoriesTechPersonal FinanceGeneral
Fintech Focus Newsletter

Your update on what’s going on in the Fintech space. Keep up-to-date with news, valuations, mergers, funding, and events. Sign up today!