By ANTHONY VILLIS
It's no secret that today, as humans, we're living longer than ever before. Advances in technology and modern medicine mean that people born in the UK in the early 2000s are likely to live on average to the age of 100. This is vastly different to just 50 years ago where we were only expected to live the age of 70.
As the population continues to grow and age, the government is likely to expect more from us as individuals to serve our own interests, and take greater responsibility in planning for our futures. As the requirement for private provision sharply increases, the financial planning profession will need to rise to the challenge of meeting the needs of consumers, at scale, whilst ensuring that people can access affordable and comprehensive advice.
How do we as a profession adapt to the expected rise in demand? How can we rise to the challenge whilst ensuring our services can be accessible to everyone? The solution is technology.
It’s clear that financial services is changing quickly. In the past decade computers have graduated to running portfolios. According to the Economist (Masters of the Universe, October 5, 2019), the amount of capital run via computers reached $4.3trn invested in American equities, exceeding the sums actively run by humans for the first time.
In order to meet the needs of consumers, we will need to look to technology for inspiration; to take the wealth of knowledge that exists within our profession, digitise it and make it easily accessible so that a greater number of people can engage with financial planning.
The future will see fully interactive platforms developed to allow clients to build their own financial plans. Technology will act as an educator, allowing consumers to access ‘do it yourself’ planning. To run financial forecasts and understand different outcomes given different assumptions and to begin thinking about what their financial future will look like.
Technology will make engaging with a financial adviser more time-efficient. The hybrid model, combining technology with human interaction, will soon replace traditional face-to-face advice as the preferred method of service delivery.
The rise of financial coaching
If we agree that technology will increasingly do much of the heavy lifting, financial planners will need to adapt their skills to continue to be relevant.
The shift towards financial coaching will continue; helping clients decide what matters most to them, working to remove self limiting beliefs and using behavioural insight to keep them on track.
Post the financial crisis, we have witnessed a shift in behaviour, with people looking to use their wealth towards achieving happiness, financial wellbeing and quality of life. This trend will continue and advisers will have an important role to play in the process. Helping clients in pursuing experiences over the pursuit of material ‘things’, dedicating time and resources towards supporting causes we care about and harness our wealth towards doing good.
Our profession will need to invest time and resources into the next generation of advisers by providing training on how to offer financial coaching, as well as an understanding of behavioural finance so that they can better support their clients. This adviser upskilling has already started and it will gather momentum.
There is a common conception in financial planning circles that computers will never be able to deliver the coaching side of our role. Our jobs are therefore protected. I’m not convinced that this is true. As Artificial Intelligence (AI) learns to read people’s expressions, learns to understand the tone of language and learns to create, it is only a matter of time before individuals will be able to have a meaningful interactive conversation with a computer about their hopes, fears and dreams for the future. This will mark the beginning of the true robo adviser.
Virtual reality and gamification
Virtual reality (VR) and gamification will begin to feature in financial planning.
Imagine a cashflow model that could be brought to life through a VR headset. Rather than seeing a series of bars on the screen, VR would allow individuals to fast forward into their future. To show them their future life, where they’re living, what holidays they’re taking, how it feels to downsize their house, to help their kids with their finances or to pay Inheritance Tax!
‘What if’ scenarios could be modelled live using the VR headset. How do the decisions being made today impact you in the future? How does your behaviour affect or support your ability to achieve your goals? For example, we can step into the shoes of our future selves, and look at the lives we will live 40 to 50 years down the road if we save £200 a month versus £2,000. This application can bring home the need to save for our futures.
Having a platform that shows the magnitude of making those seemingly small contributions, and presenting it in a format that dispenses with complex graphs and makes planning something more easily understood, will carry an enormous benefit. It’s a great way to overcome present bias and I’m sure clients will love it. Financial planning has the ability to become seriously cool in the future.
Gamification can also be brought to life through wearable tech. We already have it in the fitness industry, with individuals targeting the amount of steps they are taking each day or the number of calories burnt, with the results displayed on your watch. This can extend to financial planning.
Daily tasks can be set around good financial behaviour, for example, skipping an expensive coffee or avoiding an impulse purchase. Finances can take on a video game-like quality and goals can be set that are just slightly out of reach to encourage engagement; and daily task success will deliver a dopamine reward hit.
Artificial Intelligence — Evidence-based financial planning
As further digitisation sweeps the profession, we can harness rapid advances in AI and Machine Learning to empower clients to take a more active role in their financial planning.
AI will also offer clients insight into how long they can expect to live. By pulling together data from various sources such as DNA profiles, lifestyle, postcodes and family history we can help them to better plan for what the future might hold, and ensure they can protect their interests over the short, medium and long term based on that outcome.
Access to data will quickly accelerate. A logical progression for GDPR is that data is owned by the consumer, and should be available to them instantly in any form they choose to consume it.
As we know, data collection is currently painfully slow and tedious. The future will be different. Centralised financial planning hubs will instantly access client data, providing a complete view of their finances; a proper dashboard. Feeds from open banking will allow instant access of expenditure, cashflow models can be built (using accurate life expectancy forecasting) and AI will suggest planning options based on the massive data source available; this option looks like a good fit given your goals and data we hold similar positions.
The rise of AI-supported evidence-based financial planning is inevitable. The need for subjective views from an adviser will become redundant. Given all of the facts, given all of the data, taking into account your life expectancy, the highest probability of success is this course of action. Real robo advice should be redefined as evidence-based financial planning; this is the future.
As the demand for such technology increases, regulators will need to be willing and able to support our profession in bringing about legislation that not only paves the way for innovation, but actively encourages it.
Regulation will increasingly digitise. Digital advice records will allow AI to analyse vast quantities of data, looking for anomalies were the advice or the solution looks out of step with expectations. These markers will then allow further investigation.
Regtech will be a massive win for the profession. Costs will be driven down, bad practice can be identified and quickly acted on. Technology will help regulators become less reliant on the subjective decisions of poorly qualified and inexperienced humans.
Financial Planning Avatars and extreme personalisation
With the rapid introduction of virtual assistants that rely on voice control such as Google Home or Amazon Alexa, our profession could stand to gain an enormous amount by adapting to this new form of communication.
Accessing certain information can be a challenge for clients leaving them feeling frustrated or unsure where they truly stand with respect to their goals. The ease of obtaining data through voice technology and the simplicity of using it has a powerful and universal appeal, so we must ask… why should retrieving personal data and handling finances be any different?
Google recently announced that 20% of searches made on its platforms were made with ‘voice enabled’ devices. Coupled with the rise of mass data, this trend is only set to speed up. Increasingly, AI will also facilitate extreme personalisation in the output provided; answers tailored specifically to that individual's situation, rather than generic search results.
As these vocal forms of search become more commonplace, they will be able to access all of the individual’s data with the centralised financial planning hubs we discussed earlier. Combining the data with AI, the financial planning avatar will be able to accurately respond to specific money related questions.
Imagine saying ‘Hey Google, how much income will I receive when I retire ?’’ and having that request automatically applied via voice recognition. Not only would the financial planning avatar answer the question, but would have the ability to make suggestions:
Financial Planning Avatar: "Your anticipated retirement income at 70 will be £25,000 per annum."
Financial Planning Avatar: "Based on your current spending, in order to support your current lifestyle in retirement, you will need to save an additional £1,000 per month for the next 20 years, you could do this via your ISA."
Individual: "Hey Google, increase my monthly ISA contribution by £1,000 per month."
Financial Planning Avatars will allow clients the ability to more readily participate in their financial plan by making small adjustments without having to make contact with their adviser (if they have one at all in the future). Innovation will quickly become a crucial focus for any organisation seeking to gain market share and stand out.
Brain Computer Interface and remote monitoring
Financial planning is set to benefit massively from Brain Computer Interface (BCI) technology. A brain-computer interface (BCI) is a computer-based system that acquires neuron brain signals, analyses them and translates them into commands that are relayed to an output device.
As computers become more powerful and our understanding of the human brain increases, some pretty spectacular science-fiction will become reality.
Human interaction is restricted by speed of conversation or the speed of typing. BCI will change this and give us the ability to share full sensory and emotional experiences; the ability to transfer at the speed of thought the way we feel about things to a computer or another individual.
The practical applications for financial planning are massive. Instantaneously we can receive information about how clients feel, their previous experiences, their life goals and how they feel about risk. Our ability to empathise will advance hugely, as we accurately understand their feelings direct from their brain; misinterpretation will disappear. Long conversations and great questions will no longer be required and the technology could completely remove the need to meet clients all all.
BCI will also combine with wearable tech. Information about the way we are feeling can be interpreted and sent to gadgets which can then provide relevant messaging to help us. For example, if we were feeling anxious after watching the latest financial news, our BCI would recognise the neurological signals and smart watches could generate behavioural messaging about ignoring short term noise and investing for the longer term. Financial coaching watches will become a thing!
Transhumanisation - Financial planner 2.0
Looking further into the future, developments in technology, behavioural changes and medical advances could lead to the reality of transhumanisation. Transhumanisation suggests that the current human body is in a relatively early stage of its development and the future we will see our bodies augmented with sophisticated technologies to enhance our performance; to make us smarter, stronger and more capable.
A finance chip could be augmented with the human brain, allowing individuals to instantly access of all of the data available, and AI would allow us to consider evidence based financial planning for every question the individual has. You effectively become the most powerful, knowledgeable financial planner on earth! Individuals instantly have the ability to consider and provide solutions to complex issues, based on the mathematical probability of success.
Humans would be able to use the augmentation either as a sounding board, deciding to make decisions themselves, or switch the Financial Planner button on, so that all decisions are made by and actioned by the computer; the fully autonomous financial adviser.
Reflecting on how far we as a profession have come in recent years, and looking ahead to the exciting future that lies ahead, we must not be fearful of change. We should embrace new technologies with an open mind and a willingness to explore new possibilities.
Supporting greater diversity in our profession will also be key to ensuring that the balance of new ideas that are brought forward by individuals from all walks of life, enable us to make great financial planning available to everyone.
ANTHONY VILLIS is the Managing Director of First Wealth, a chartered financial planning and wealth management firm based in London.