How to Thrive in Spite of an Imminent Threat to the Advisory Profession
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Advisors are highly qualified, although few clients are capable of understanding the difference in your credentials.
Does it matter?
While obtaining a Certified Financial Planner designation is becoming ubiquitous, it doesn’t come close to the expertise required to earn a Ph.D in Finance, a C.P.A., an MBA or a CFA.
Do prospects or clients care? Should they? Should you?
It matters but...
Technical expertise matters. A competent advisor can meaningfully improve the lives of their clients.
Expertise is critical to establishing cognitive trust, which is, “based on the confidence you feel in another person’s accomplishments, skills and reliability.”
However, the emphasis on technical competence can be overdone, as explained in this thoughtful article by Rachel Mortimer in FT Adviser. It can cause you to overlook skills that are of equal (or greater) importance.
AI is coming
Much of the work demonstrating your technical expertise may be replaced by artificial intelligence in the near future.
In January, 2019, Forbes contributor Jay Adkisson wrote a fascinating article entitled: Artificial Intelligence Will Replace Your Financial Adviser – And That's A Good Thing”.
Adkisson wrote that artificial intelligence is much better at taking financial information and preparing a financial plan than human advisors. Here’s the essence of his argument:
Artificial intelligence can easily digest all financial historical data, determine historic trends, and access each and every current source of information to have an up-the-second understanding of the markets. Here, simply stated, the human financial [advisor] has no chance against artificial intelligence.
The capacity of artificial intelligence is mind-boggling. It can keep track of the entire IRS Code and perform instant calculations to improve tax efficiency. It can make adjustments to 529 plans based on changes in projected tuition.
But the greatest benefit may be the elimination of human error and emotion.
Adkisson noted that AI financial advisors are “already here” and are “quite likely to take over the sector entirely within the next decade.”
His analysis doesn’t mention another looming threat: the entry of one or more of the major technology companies into the financial services sector. Those companies clearly have the resources to maximize the potential of artificial intelligence.
Refocus your expertise
A focus on your technical expertise is a serious cause for concern, according to James Mousley, co-host of the Adviser Gap Podcast. He’s worried we are, “creating an army of technical experts” who lack communication skills, like “listening, questioning, relationship building and body language.”
He laments the time (“thousands of hours,” he claims) spent at professional conferences honing technical skills and “zero hours” on “being human.”
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His concerns echo my experience. The first question I ask new clients is to show me the evidence supporting the way they interact with prospects and clients. I get a blank look.
Maybe it’s the nomenclature that’s a problem. When I wrote The Smartest Investment Book You’ll Ever Read, I struggled with its emphasis on “passive” investing. Who wants to be passive?
Over time, “passive investing” became “evidence-based investing,” which is far more appealing.
The skills I teach as part of The Solin Process℠ are often called “soft” skills, which is a misnomer. They’re evidence-based and critical to all relationships. It’s difficult to be successful in business or in life without them.
Advisors who want to survive and thrive in the coming decades must burnish those skills with the same intensity they devote to their technical expertise.