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.
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.