I was talking to a friend a while back who told me her grandmother grew up in the 1800s, before people had cars, airplanes or even electricity. That means not only no lights, but no telephones (or cell phones), radio, movies, TV, air conditioning, modern medicine—or computers of any kind. And she lived into the 1970s. Can you image the culture shock she must have experienced in her life time seeing people walk on the moon, commercial air travel, heart transplants or, had she lived long enough, the Internet?
If you’re like most people, you probably find it hard to resist the urge to feel a sense of superiority over folks who lived 100 years ago or so, and who “obviously” weren’t nearly as “smart” as we are today. Historians call this “hindsight bias,” i.e., the inability to understand the thinking process of people who didn’t know as much as we know now. It seems to be nearly a universal human trait. Yet I find it fascinating that we don’t stop to consider that 100 years from now, people will find many of the things we’re doing now just as lame as we consider outhouses, stagecoaches, slavery, forced marriages, industrial monopolies, bloodletting, legal insider trading and child labor.
The notion of hindsight bias often pops into my head when a New Year is looming and I take a moment to reflect on the events of the past year—and I wonder which of things we’re thinking and doing today will mortify people of the future? For instance, I have a haunting suspicion that 100 years from now (and possibly a lot sooner), people will look back on our cursory gestures toward online security and cry: “They did what?!”
You have to admit that virtually all of the information we store on the Internet—including our passwords—is easily “hackable” by a growing legion of folks who know what they are doing, and can make millions of dollars doing it. (And did you know that there’s a feature on your iPhone that tracks and records where you are and where you go every minute of every day? Your cellular provider finds that info to be very valuable to local retailers, among others.)
Sadly, I doubt that today’s advisory industry or financial services industry will be exempt from causing some future forehead slapping as well. And I suspect that some of it will result from our own use of the Internet.
Years ago, I met a financial advisor who had, in a prior life, worked for the federal government in the “intelligence community.” She wouldn’t talk about it very much, but she did warn me about technology, particularly the Internet. In her advisory offices, she had only one computer that was connected to the Internet, and the only contact between that computer and the other computers in her office was via memory stick and sneaker-net. “You have no idea what those guys can do,” she told me. And that was 20 years ago. Imagine how many more of “those guys” there are, and what they can do, today.
Rise of the Robos
This year also brought us face to face with another technology “threat” to the advisory industry: the so-called robo-advisors. It’s fair to say that the robos will change and are changing the advisory world: substantially lower AUM fees are bound to change the way clients and advisors think about investment management. Bu, as I’ve written before, I suspect that like other major technologies (the desktop computer, portfolio management and client service software/platforms, the Internet, cell phones, etc.), robo advisors will ultimately prove to be a substantial benefit to independent advisors.