A machine-enhanced human relationship between the advisor and the client.
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A machine-enhanced human relationship between the advisor and the client.

A machine-enhanced human relationship between the advisor and the client.


Luc Meunier, Grenoble École de Management (GEM) and Sima Ohadi, Grenoble École de Management (GEM)

Financial advisors generally have prescriptive roles where they give practical advice to help their clients make decisions that are more rational. They help investors to build their portfolio based on their needs and risk profile. Successful advice does not only deliver high returns, but it should help clients live with the decisions they made. In this process, trust is the key word: the advisors are “money doctors”.

Money doctors basically give investors enough confidence to take risks. As with patients who don’t just go to any random doctor, investors don’t go to any random advisors. Investors hire those who they trust. A trustworthy money manager can decrease the investor’s perceived risk. Trust is not just based on past performance – it also comes from confidence in the advisors" communication, relationships, and networks. In their model, Gennaioli et al (2014) show that investors prefer hiring a wealth manager rather than investing themselves even if the wealth managers on average perform poorly relative to the market and their advice is costly and generic. It appears that advisors or money managers are hired by investors to help them make peace with their decisions.

Robo-advisors on the rise

Robo-advisors or automated portfolio allocation software are managing wealth effectively by providing financial planning services that meet the financial situation and future goals of clients. These smart digital platforms are doing a great job of providing cheap, accessible, and direct advice to their clients. Robo-advisors are just getting more and more recognition and as a result, the assets managed by robo-advisors reached $244 billion at year-end 2017 and are expected to hit 1.44 trillion by 2022. This development raised discussions about the comparisons of superiority between robo-advisors to human advisors.

While at first glance it seems like robo-advisors could bring about the extinction of human advisors due to the automated algorithms, we argue that nothing can replace the relationship a human advisor can build with her/his clients. Such empathetic connections cannot yet be developed by robo-techs no matter how advanced they are in calculating the optimal portfolio. After all the human species (us!) has illusions and biases. A one-size-fits-all solution cannot work properly in the long run, particularly in financial markets where emotions or even hormonal levels have been shown to play a role.

This argument is summarized by the answers of more than 55,000 customers to a survey of Ernst and Young. Around 55% agree or strongly agree with the statement: “It’s important that I can speak to someone at my bank 24 hours a day, 7 days a week over the phone or in person.”

Another 59% agree or strongly agree with the statement, “I’m happy to research product online, but to take up a new product or get advice, I need to be able to visit a branch or call a real person”. Tt seems that investors still prefer a face-to-face relationship with their advisors during the process of financial planning. Part of this need is because a human advisor can help clients with prioritizing their needs and adopt strategies as their lives change. This can build a relationship that goes beyond investment knowledge. This is why human advisors are money doctors while robo-advisors are not there yet.

Fintech and augmented advisors

It is clear that technology is going to be a game changer for all investment advisors and wealth managers. But what will happen to the human advisor? Here comes the unique role of the human advisors to show compassion for and understanding of their clients. These advisors can bring value to their clients by knowing them and being able to see the situations when things go wrong and help them to move on with their decisions. That’s the future for human advisors: show compassion and empathy over doing all the quantitative analysis of portfolio allocations.

Rather than pure robo-advising, it is, therefore, a mix of technology, behavioral science and human that seems more promising: a machine-enhanced human relationship between the advisor and the client.

Indeed, a number of fintech start-ups are taking a behavioral finance approach to help both advisors and robo-advisors with their clients, often in partnership with established players (a model defended by the Ernst and Young report, to accelerate innovations and deliver better outcomes to customers). Time will tell to what extent these behavioral fintech start-ups can serve their purpose to help banks and other traditional players better serve their clients.

The bottom line is that in the near future, thanks to technological advances, both human advisors and robo-advisors can have better tools for augmenting their advices by understanding their clients and communicating with them. Just like robot-assisted surgeons, advisors might become “robot-assisted money doctors”.The Conversation

Luc Meunier, Professeur de Finance et Doctorant, Grenoble École de Management (GEM) and Sima Ohadi, Professeur affilié, Grenoble École de Management (GEM)

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Refection and comment by ken Grace

As We continue to develop an refine our digital Platform for Financial Advisor, its research such as this, that enables us Improve. The findings represented within this research report justify and validate the approach we are taking and plan to take for the development of a digitally augmented solution for financial advisors.

A founding philosophy of Goldsky is that personal relationships define the success of financial advisors. However, this relationship can be bolstered and supported by advancements in technology. Developments such as Goldsky's Professional which will be integrated within the Platform.

Goldsky's Professional is a supplier of quantitative investment models that provide the advisor with a powerful tool to assist in achieving desired returns and a lower risk profile. Goldsky's Professional utilises state-of-the-art information analysis technology that incorporates AI, machine learning and Chaos Theory based fundamental analysis to provide superior data-sets to optimise investment decisions.

Goldsky's Professional will be supported by a set of powerful digital advice tools powered by AI. Tools designed to augmenting advisor’s advice by helping them understanding their clients and communicating with them. These tools will provide a connection that is a natural extension of daily life for both the client and the advisor.

"I would like to thank, Luc Meunier, (GEM) and Sima Ohadi, (GEM) for their academic precision and persistence displayed throughout the above article. It is for this reason that their article is being featured on Goldsky Global," Ken Grace, CEO.