(Born2Invest) Even more conservative fields such as financial planning have to reckon with the disruptive power of tech. AI, cybercrime and a new, tech-savvy generation are all going to require a response from financial planners. But just how — and how much — will this affect the future for financial advisers?
Here are some major technology trends set to change how financial advisers work.
Artificial intelligence and the “robo-adviser”
AI is staged to disrupt nearly every industry, and financial services are no exception.
Robo-advisers are software platforms, driven by AI technology, whose job is broadly the same as a financial adviser’s — financial planning with little or no human oversight. These advisers have been around for just a few years and are rapidly becoming popular.
But will robo-advisers displace financial advisers? Probably not — even in AI-dominated fields, they’ve only slightly lifted the burden from workers. However, that doesn’t mean financial advisers should feel completely secure about AI’s disruptive potential. Customers with fewer assets will likely get a lot out of a tool that helps them allocate their savings.
Traditional financial adviser customers with more assets in need of a stronger adviser-client relationship probably won’t benefit from the services provided by a robo-advisor. That doesn’t mean that financial advisers should rest easy. A robot won’t steal your job tomorrow, but another financial adviser with the assistance of an AI platform might put up a fight.
But as with any industry, the impact of AI will come down to whether these AI-based tools actually help clients make informed financial decisions, or if they’re just the result of an industry jumping at a chance to be at the cutting edge.
The rise of cybercrime and cybersecurity
Cybercrime will become increasingly costly as more valuable information gets stored in the cloud and servers accessible from the web. By one estimate, as much as $5.2 trillion is at risk, with banking and capital markets two of the industries hit hardest by cybercrime in 2017 and 2018.
In the future, hackers will target valuable data — especially financial data. As financial advisers work with more data that’s stored on servers or open to cyberattack, cybersecurity will become increasingly important. If they want to defend their clients’ data properly, financial advisers will need to find some cybersecurity solution.
New SEC regulations may require financial advisers to bolster the security of sensitive client info. The SEC already has its own guidelines for preventing cyber intrusions but hasn’t yet required advisers to take steps to defend client data. That could change as these attacks become more frequent and costly.
The sharing economy may come to the financial sector
After penetrating about every other aspect of American life, the sharing economy — which includes ridesharing apps such as Uber and the popular online lodging marketplace Airbnb — may soon disrupt the financial sector and how banking works.
Peer-to-peer lending enterprises such as LendingClub (NYSE: LC) are experimenting with a marketplace that matches borrowers seeking unsecured personal loans with investors. But the idea isn’t new — LendingClub was founded in 2006 and hasn’t yet made as much of a splash as sharing economy apps in other sectors.
Big banks are taking notice and preparing themselves for the possibility of a shift in how people use money. Experts think asset ownership may become more decentralized in the 2020s. It’s not clear right now what sort of relationship Gen Z will have with money, but millennials are falling into more traditional relationships — saving and planning for retirement, albeit at lower rates than previous generations.
What is likely to change is how much technology is involved in modern financial planning. Younger generations are less likely to enter bank branches and more likely to seek digital solutions for financial services. Millennials and Gen Z may push the financial sector to become more tech-friendly.
The future for financial advisers
In fields such as financial planning, tech is more likely to assist advisers rather than severely disrupt the industry. But that doesn’t mean financial advisers should ignore the role tech is playing in their industry. Cybersecurity is going to be on most financial advisers’ minds in the coming years. Tech may properly court Gen Z and increasingly-stable millennials.
