The technology with the most radical impact on advisors’ businesses isn’t robo-advisors, according to Ric Edelman, founder and executive chairman of Edelman Financial Services. It’s the exponential technologies they may know little or nothing about: artificial intelligence, robotics, 3-D printing, nano- and biotechnology, bioinformatics, big data, materials and science.
These technologies may sound a little outside the realm of an advisor’s practice. However, writing them off as not something they need to dedicate time and attention to is moving in the wrong direction, according to Edelman. These exponential technologies will have a profound effect on their clients and will force advisors to eventually address their impact.
Edelman recently published a new book, "The Truth About Your Future: The Money Guide You Need Now, Later, and Much Later," exploring these themes.
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Exponential “sciences and technologies are going to alter virtually every aspect of life on the planet,” Edelman told ThinkAdvisor on Thursday. “I’m not talking about the latest software upgrade from people who make financial planning software. I’m not talking about Apple’s new iPhone. I’m talking about technologies that are going to upend all of the assumptions that financial planners use in their financial planning models and in the advice they give to their clients.”
For example, Edelman said that among the most significant change resulting from exponential technologies is in life expectancy. “The typical planner today is assuming that his client has a life expectancy of age 95. When I first started in this business in the ‘80s, we used to assume 85.”
Experts in health care and other fields, though, are predicting that today’s 60-year-old will more likely die at age 110 or 120, Edelman said. “If that’s true, most of the financial plans that planners have produced will blow up. They aren’t contemplating that the client will have a 50- or 60-year retirement.”
Edelman said that the notion of retirement itself is going away as people will continue working long into their 80s, 90s and 100s.
Advisors today have worked very hard to prevent that very scenario for their clients, but because morbidity is improving as well as life expectancy, Edelman said, the 85-year-old of the future who continues working will have more in common with a 55-year-old today.
He referred to research where scientists successfully reversed the effects of aging in mice. That means that “at age 95, you’ll probably be healthier than you are at 55 today.”
Some experts predict that today’s leading causes of death — heart disease, respiratory illness, diabetes, cancer — will have been cured by 2030, Edelman said. Older people won’t be working long after they want to stop, but because they aren’t forced to stop by their health.
College Planning Not Just for Clients’ Kids
That means that advisors have to help their clients plan for much longer lives and, for clients who do want to retire early (whenever “early” is in the future), retirement. A big problem that will be wrought by exponential technology for people who want or need to keep working is that automation will make a lot of today’s jobs obsolete.
“Over the next 15 to 20 years, about half of all jobs in America will no longer exist,” Edelman said.
“College planning is no longer the dominant financial issue for most American families. Most American planners spend a lot of attention helping their clients save for college, but that’s going away," Edelman continued. "It’s going to be replaced by lifelong learning. The notion that you’ll be able to get a college degree and work in that career for your whole life won’t exist because chances are, that career won’t exist in the future.”
For example, Edelman said there are 300,000 people working full time as app developers, even though smartphones are only about 10 years old. New jobs will exist a decade from now, “which college can’t prepare you for because they don’t exist,” he said. “You’re going to need to engage in lifelong learning. Every couple of years, you’re going to need to go back to school to get new skills.”
Financial planners already serve a quasi-therapist role for their clients as they help them work through behaviors and attitudes that prevent them from being as financially successful as advisors think they could be. Edelman believes that role will continue to change as they find ways to help clients stay relevant.
“We’re going to have to learn career planning to be able to help our clients identify the career that they’re passionate about, help them discover where to get the education and training, how to pay for it, and maintain their lifestyle while they’re transitioning,” he said.
Advisors aren’t immune to disappearing job functions either. Parts of their job are already being replaced or supplanted by automation in investment management, Edelman pointed out, and a “life coaching” approach to financial planning will become even more important.
“It’s very difficult to charge a lot of money to a client just for investment management because you have online sites that will do it for 15 basis points. You have Vanguard and other mutual fund providers that will do it for 5 basis points.”
21st Century Investing
Furthermore, investment management requires advisors to look more closely at the securities their clients are holding.
In the 1930s, the typical company in the S&P 500 survived an average 65 years, Edelman said. Today, that average is 15, and “by 2025, 40% of the Fortune 500 won’t exist.”
Stock portfolios filled with huge, well-known firms could be a big mistake, he said. For example, Kodak, a 135-year-old brand, went bankrupt in 2012, the same year Instagram was sold for $1 billion, he said.
“Do you own the stocks that were successful over the last century or do you own stocks that are designed for success in this century?”
Edelman assisted BlackRock and Morningstar on the iShares Exponential Technologies ETF launched in March 2015, which consists of 200 global companies that are developing or using exponential technologies to grow their companies.
Another innovation advisors will want to work hard to understand is blockchain and distributed ledgers. “I’ve had technologists say to me that in terms of importance: the wheel, the internet and the blockchain.”
However, at conferences, Edelman routinely finds advisors who have never heard of blockchain or are unable to explain it. “For an advisor to be unable to explain the blockchain, to be illiterate when it comes to digital currencies, you have to question the validity of the advice they’re providing to their clients. If the advisor is as clueless as the client, there’s a problem.”
--- Read Ric Edelman — Media-Savvy Advisor: The 2017 IA 25 on ThinkAdvisor.