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Financial Planning > Tax Planning

The Future of Financial Advice: ‘Judgment Day’ or ‘Rise of the Humans’?

By Emily Zulz

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What does financial advice look like in the year 2021?  

A new white paper from the Certified Financial Planner Board of Standards Center for Financial Planning explores the future effects of digital advice on the financial planning profession.

The CFP Board enlisted a team of senior business executives and thought leaders in the financial advising, wealth management and technology sector – calling it the Digital Advice Working Group – to envision how future environments and events may lead the industry down several conceivable paths. 

“A great deal of uncertainty continues to surround the digital advice revolution,” said Joe Maugeri, managing director for corporate relations at CFP Board, in a statement. “The Digital Advice Working Group was born from the recognition that the fast-moving digital trend continues to cloud the future. By looking at multiple probable outcomes – as opposed to just one scenario – we’re not banking our future on just one outcome, and participants were encouraged to imagine alternate futures where their business models might not be as successful as they are today or hope to be in the future.”

The group created a matrix of four potential future outcomes for what financial advice could be in 2021.

Everyone Goes Digital

The first potential scenario is a future where digital financial advice has taken hold of large swaths of the investment management industry.

In this scenario, the same sophisticated digital advice platforms underpin both the direct-to-consumer online experience as well as the tools used by human financial advisors. 

“Consumers, increasingly comfortable with an all-digital experience, perceive the performance gains from automated systems as on par with those of a human advisor and fully embrace the much lower fees offered by the digital sollutions on the market,” the paper states.

While technology continues to advance within silos, regulatory concerns in the future have prevented any one institution from providing holistically integrated advice across all disciplines.

Human advisors in an “Everyone Goes Digital” world function more under the model of a family doctor than a specialist – “adding value as a general practitioner through coordination of expers with deeper knowledge of specific areas,” the paper states.

Judgment Day

CFP Board’s “Judgment Day” scenario assumes that digital advice accelerates to the point of ubiquity, with some form of financial advice available for free to most consumers. 

Thanks to advances in machine learning, digital advice platforms can now “think” like a financial advisor and provide comprehensive financial plans that span investment management, wealth management, tax planning, retirement and multiple other financial disciplines.

“Within the mass-market and mass-affluent segments, the role of the human advisor has bifurcated,” the report states.

According to the board, generalist advisors would be left to fill national call centers to provide technological and behavioral coaching. Some independent advisor may find their niche through deep specialization not served by digital platforms.

Meanwhile, advisors working with high-net-worth clients must “focus on rationalizing complex business, financial and family issues and are pressed to provide platinum-level service to justify their fees,” the report says.

Rise of the Humans 

In this scenario, growing complexity of financial products extends the time horizon to realize greater automation of financial advice. 

Digital advice has not been fully realized, in this scenario, in part because of theorized high-profile technical failures.

The whitepaper gives the example of “cutting-edge portfolio rebalancing and tax optimization algorithms” that lead to “substantial client losses during a market ‘flash crash.’”

Unforeseen market events that catch robo-advisors by surprise reduce credibility in the eyes of consumers and drive hiring of human advisors to emphasize the “human touch.”

Human advisors will need to differentiate themselves with “a personal touch, communicating advice in an empathetic way that shows an understanding of their clients’ larger financial goals and utilizes the right tools and algorithsm for their needs,” according to the white paper.

Meanwhile, digital advice platforms shift more of their focus to the business-to-business market, back office automation helps advisors reduce costs, reduce staffs and greatly scale their client portfolios.

Back to the Future

In this future scenario, a cyberattack directed at an online digital advice platform turns consumers away from human-less systems and drives a preference for the financial advisor.

“In this world of digital distrust, both mass-market and high-net-worth segments highly value human advisors,” the paper states.

The white paper calls financial advice in this scenario a “one-stop shopping experience” for consumers, which places a heavier burden on advisors to encompass all elements of their clients’ well-being.

“The vast majority [of consumers] are served by a single human advisor who, supported by the latest back-office technology, is able to serve their full spectrum of financial needs,” the paper states.

Advancements in back office technology and automation in the future allow the advisor to focus on the delivery and implementation of advice. 

“in this world, the mass-market players who are able to develop the technology (either independently or through partnerships) to achieve operational efficiency while maintaining a human-centered experience will capture significant market share,” the paper states.

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