Financial Advisors Manage Clients’ Emotions, Not Their Money

By David Miller

When we see or hear the word “cyborg,” most of us envision the cold, red eye of Arnold Schwarzenegger staring at us through a movie screen. However, the idea of something half human and half machine may no longer be just a tale from a Hollywood movie.

Cyborgs are becoming a reality, albeit in ways somewhat different from the way they are portrayed in The Terminator.

In the financial services sector, the combined power of intelligent computers and humans is bringing in major disruptions that have not been seen in any industry before.

While the thought of robotic-humans is a bit far-fetched, the collaboration of super-computers with highly emotionally intelligent human beings is real and proving to be revolutionary. The future of finance is therefore in the power of computers and at the hands of emotionally intelligent financial advisors.

Thanks to artificial intelligence and deep learning, computer algorithms now can think and make better investment decisions than humans can. Just like the human brain, the super-intelligent computers are relying on artificial neural networks yielding neuro-evolution to interpret data, learn from it and make informed decisions. These machines are proving to be better than humans when it comes to investment functions that require high IQ - given their ability to analyze huge chunks of data and execute decisions within microseconds.

Today, intelligent computers are not only able to analyze big data to determine viable investments but they also can scan for tradable news and execute trades at supersonic speed. With the algorithms taking over the decision-making part of investing, the roles of financial advisors in wealth management are shifting from advisory services to client services.

After interviewing more than 100 millennials in the financial services space, the shift from advisory services to client services makes sense.  Most millennial financial advisors (unlike many of those in older generations) do not have an interest in both managing money (trading) and servicing the client (giving clients guidance on allocation weightings in relation to their goals and needs). This speaks to the evolvement in our industry in terms of complexity and the emotional intelligence of millennials. Millennials seem to better comprehend the core purpose of the financial advisor role, which is to manage client emotions, not their money.

According to a 2017 report by the CFA Institute, the disruptions happening in the financial sector are pushing investment advisors to a value-oriented, more ethical and socially responsible profession.

No Longer Trying To Beat The Market

Computer algorithms are taking over the financial advisory function of investing, meaning that investment advisors no longer have to focus on trying to beat the market. Instead, the focus is shifting to holistic customer services which include investment alignment.

Up until recently, investment alignment has been available only to private banking clients. But with robo-technology leveling the ground, financial advisors have no option but to offer these services if they are to remain competitive.

Investment alignment involves fostering teamwork among all the professionals involved in wealth management. These professionals include financial planners, accountants, insurers and attorneys. Financial advisors always have perceived investment integration as expensive and time-consuming. This is the reason advisors have been willing to offer it only to those who can afford premium prices.

The most exciting part, however, is the growing demand for financial advisors who can connect with clients at an intellectual, emotional and social level. Even when computer algorithms are taking over the decision-making part of investing, most clients need a human to listen to them and respond to their concerns. This explains why hybrid robo-advisors have been outperforming their counterparts that employ a purely robotic strategy. A study by MyPrivateBanking predicts that by 2025, hybrid robo-advisors will manage more than 10 percent of the total investable wealth.

In regard to human touch, a study by Accenture shows that financial services clients now prefer to be served by financial advisors who can provide personalized and empathic services.

The technological disruptions in the financial industry have made it possible for clients to switch service providers easily. As a result, wealth managers must invest in developing strong relationships if they are to remain competitive.

Going forward, financial advisors with a therapeutic approach to wealth management will be on a high demand.

According to Daniel Goleman, a psychologist and the author of Emotional Intelligence, the tenets of emotional intelligence include self-awareness, self-regulation, motivation, empathy and social skills.

Wealth managers need to be emotionally intelligent if they are to help their clients develop these skills. In investing, emotional intelligence helps investors understand how their emotions influence their investment decisions to create a disciplined investment approach.

David Miller is founder and CEO of PeachCap, a financial services firm that specializes in helping registered investment advisors and wealth management firms to offer white glove financial services to the mass affluent at low cost. David may be contacted at [email protected].

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