Is Google Going into the Advice Business?

Is Google Going into the Advice Business?

Advisors should work within the industry to reduce the instances of clients receiving bad advice—but not at the price of commoditizing it.

One of the latest industry rumors is a speculation that Google may be entering the robo-advisor space. This shouldn’t surprise anyone, as the race to automate all buying decisions through technology has been underway for quite some time. Just ask the music industry what that feels like.

The electronic commoditizing of music has, in many observers’ minds, had both positive and negative consequences. On the positive side, this automation process has made music an accessible, affordable and ubiquitous commodity. On the negative side, it may have stifled creativity by stereotyping listening preferences into style boxes. At first, listeners are intoxicated by selectively hearing the music they enjoy. But later, they realize the monotony that comes with uniformity and wonder when new creativity will emerge within the listening genre they enjoy. At the end of the day, wealth in the music business was distributed away from the creative source (the studios and musicians) and toward the packagers and technology distributors. The overall impact on society may be less creative innovation within music—one of life’s luxuries. But music is not a basic survival necessity.

Now let’s examine the possible consequences of commoditizing financial advice. On the positive side, it certainly lowers cost since it removes most of the cost of human capital from the equation. Strictly from a cost perspective, this is a benefit. Another positive is that it may democratize advice by increasing access to a larger cross section of potential customers. It makes finding financial advice just a Google search away. Another positive is that there is a natural reduction in the number of people who may receive outrageously bad advice. This is because standardized advice concentrates the distribution of outcomes into a much narrower band. And—as no advice is really bad, no advice is really good. This algorithmic approach seeks to replace individual advice with “group think.”

What about the negative consequences? Standardized financial advice is nothing more than a prediction model based on backward-looking data. It is run by a computer that lumps investors into raw categories based on age, timeline and risk tolerance. We already know this model fails investors in times of volatility because the natural law of the universe dictates that fear is a more powerful motivator than greed—and, left unchecked, investors will make irrational decisions about their investments, like locking in losses by selling into volatility or buying at the top of the market due to greed.

Packaging allocation advice based on a backward-looking model is, on its face, a simplistic belief that life is just a series of repeating events and that the natural laws of evolution and change don’t pertain to investment. I wish that were true. If someone ever produces a model of past events that accurately predicts future outcomes—sign me up.

I believe that the commoditization of advice is net counterproductive. When it comes to my money, my life, my health and my legal well-being, I want advice and counsel that is sound, forward-looking and that evolves with the changing dynamics of time. Can technology improve these areas by creating more transparency, reducing unnecessary cost (but not at the expense of future innovation) and streamlining the process of accessing good advice? The answer is surely “yes.”

The key for us, however, is to rail against commoditizing advice in the vital areas of our lives where progress and customization are essential to success. It’s not for us to rail against technology advancements associated with providing good advice, but to warn of the dangers of over-simplified, expedient, non-progressive thinking. One of my greatest concerns is that the well-connected and well-off alone will continue to receive good counsel while the masses are lulled into false security, clinging to simple solutions that likely will not deliver on their implied promises.

Our country has prospered and thrived precisely because it has sought to balance the interests and aspirations of the individual with the need for an orderly and just society. This model of balance is founded on the natural law that things can, do, should and will change, but hopefully not at the expense of innovation and, most importantly, wisdom and good counsel. A representative republic works best when its leaders hear the voice of the masses, but turn to each other and focus on identifying the root problems and solving the core issues without rushing into the simplest, quickest and cheapest “solution.”

For those of us in the wealth management business, I can see no greater calling than to rise in the defense of wise counsel. We should work within our industry to reduce the instances of clients receiving bad advice—but not at the price of commoditizing advice.

 

For educational purposes only. This material is neither an offer to sell nor the solicitation of an offer to buy any security, which can be made only by the applicable offering document. 

 

 

Frank Muller is Executive Vice President and Head of Distribution at Behringer

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