The Future of Financial Advising: Will Humans be Replaced by Robots?

Article published on Oct. 2, 2015
Article published on Oct. 2, 2015

This article has not been vetted by an editor at Paris HQ

Just a couple of days ago, the financial world was abuzz with news about global investment management company BlackRock buying off FutureAdvisor, an automated investment advisory platform for “mass-affluent” families for a value predicted to be between $150 and $200 million. 

FutureAdvisor is a robo-platform for the investment management company aimed at providing automated financial advising to clients. The company call FutureAdvisor platform as a robo-advisor.

This news has sparked off an already ongoing debate about whether human financial advisors would be replaced by robots in the future and there is a debate about which firms are better – the robot-dependent ones like Wealthfront, Betterment, Personal Capital and BlackRock or the ones that rely on more on human expertise like Duff & Phelps, Deloitte and Goldman Sachs.

This debate has been going on over the past 3 years as a number of venture capital firms investing in and funding development of robot platforms for financial advising in forms like Wealthfront, Betterment and Personal Capital.

As part of BlackRock Solutions, FutureAdvisor will be used to help independent advisors as well as banks, broker-dealers and insurance companies target the mass affluent market.

As demand for digital wealth management grows, we believe that our combined offering will accelerate our partner firms’ abilities to serve the mass affluent in a convenient, scalable way,” Tom Fortin, head of retail technology for BlackRock said in a statement.

However the debate seems to be tilted in favor of human intelligence and robotic technology is viewed to be playing an assistive role only.

"BlackRock is potentially a very powerful partner for advisors. As asset management becomes more commoditized, platforms like FutureAdvisor's frees them up to work more closely with their clients and to attract new ones," says Sean McDermott, an analyst covering the digital advice market for New York-based Corporate Insight.

Established global financial advisor firms like Duff & Phelps, UBS and Merrill Lynch, while admitting the role of technology in the financial advising market, stress on using the technology and its analytical power with the human touch.

As Dan Egan, the director of behavioral finance and investments at Betterment points out: “the whole idea is that a robot adviser will protect clients from short-term worry and monitor investments so they don’t have to.”

The top financial analytical and advising firms like Deloitte are of the view that the disruptive power of digital technologies business models is creating opportunities for new firms to make a big splash in the wealth management industry. However, other kinds of financial services firms — such as asset management and insurance companies — may be able to leverage similar capabilities to provide client advice and add greater value through their own distribution channels.

At Duff & Phelps, the leading global valuation and corporate finance advisor, that specializes in complex valuation consulting and M&A, the essence of technology is balancing it with the expertise of a financial advising firm through the combination of complex data and human insight to create a solution that tempers between what a client wants to hear and what the client needs to know.

When the certainty of the numbers is mixed with the skepticism of a trusted partner, diligence becomes scrutiny and facts become insights. This creates lifelong partnership with the client”, says Yann Magnan, Head of European valuation Business at Duff & Phelps.

Magnan’s voice was echoed in a recent survey by Accenture which summarized that the digital investing tools are changing the ways financial advisors connect with investors and the manner in which the investors use their advisors in the future would be dictated by these tools.

Investors are relying more heavily on digital tools to help them better understand investment trends, decisions and potential outcomes,” said Owen Jelf, global managing director of Accenture’s Capital Markets practice.

Other analysts and experts stress on the element of trust that human advisors build up with their customers. A research by Cerulli Associates, a global analyst firm, found that 81 percent of households surveyed were satisfied with their financial advisor, and the top reason given by households with $2 million of investable assets or less was the advisor’s reputation and trust.

Our combination of technical analysis and industry expertise is the difference that enhances value, helps our clients build businesses and gives them peace of mind when making important decisions. The years of real world application of the expertise helps build a relation of trust with clients”, said Yann Magnan, of Duff & Phelps.

Capgemini, one of the leading global analytical firms says that advisors need to leverage their institutions’ expertise and resources to meet their client needs with the use of integrated, end-to-end next generation wealth management platform.

Such solutions need to identify the gaps and challenges in the existing advisor workstations and should be designed to help financial advisors provide a superior client experience,” says Paul Hermelin, the CEO of the firm.

While citing the importance that technology plays in modern day financial advertising, Lloyd Blankfein, Chairman and CEO of US based bank Goldman Sachs says: “In today’s competitive marketplace, success at Goldman Sachs is increasingly driven by our expertise in technology. Our best-in-class technology platform enables us to efficiently market products to our clients around the world. We pride ourselves on being an industry leader in this area.”

It can thus be concluded that in the war between the robots and humans in financial advising, the human touch, intelligence and feeling are irreplaceable. As Sean Park of Anthemis, an investment firm that has backed Betterment says: “while the robo-advisers are doubling their assets under management every few months, they are nowhere near big enough for sustained profitability compared to the established financial advising firms.”