Whenever we try to predict what will happen in the future, it’s helpful to look at the past. I’ve worked in the financial services field for more than 20 years. During that time, technological advances have revolutionized not only this industry but also society in general. Just consider the iPhone, which has existed for only about a decade and yet has fundamentally changed our lives. So many different products that once needed to be bought separately now fit into your pocket thanks to smartphone technology.
From a financial services standpoint, automated advice platforms, or so-called “robo advisors,” and extensive low-cost investment options have made long-term planning more accessible to a wider range of people than ever before, while simultaneously roiling the industry. So when we think about how financial services could be different 25 years from now, technology is bound to be a key player. Here are a few developments that I believe could define the future:
Humans will be almost entirely eliminated from financial advisory roles. In the next 25 years, artificial intelligence will all but remove the human element from financial advice. Algorithms will become progressively more insightful and accurate, constantly accounting for new information while eliminating the potential of human error.
Even today, if your role as an advisor is essentially portfolio allocation, this service is being threatened by robo advisors. You need to instead position yourself as a retirement readiness expert. Ask clients about their fears, hopes and dreams so you can help create positive change from an emotional standpoint. There will always be a place for human connection; after all, clients are human beings. But it remains to be seen how that connection will be compartmentalized in the future. It almost certainly won’t be in the role of a traditional financial advisor.
The current financial services business model will become obsolete. When I entered the field in the mid-1990s, commission-based payment models dominated. This clearly wasn’t in the best interest of clients, as financial advisors made money only by trading assets. In the late 1990s, the industry started transitioning toward an asset-based fee system. This was better but still flawed because even a 1 percent fee can cost a client significant wealth over 30-plus years due to compounding interest.
As a result, I believe asset-based fees will be largely eliminated over the next 25 years. My company already avoids this model, instead charging a set monthly fee to manage 401(k) plans. If the asset-based model fades away, firms that rely on it will either disappear or be forced to adapt. Although my company has been successful with a set monthly fee, that model too could eventually become obsolete.
Just look at the most successful companies in America over the past decade, such as Facebook. They’ve grown exponentially by providing free services to users. As technology evolves, clients will increasingly expect their financial services to be free as well, or close to it.
How will firms generate revenue in the future if the model isn’t based on commission, assets or a set monthly fee? Facebook makes money by providing targeted advertising through the mining of metadata. Financial services could head in that direction too, and free services like Mint and Yodlee demonstrate the future model may already be here.
The future of financial services has a lot of exciting things in store, especially for retail investors. It’s imperative that we as professionals work in tandem to determine how to implement these technological advances and present them to consumers in a way that ultimately supports their financial lives.
Chad Parks is the founder and CEO of Ubiquity Retirement + Savings, headquartered in San Francisco.