Wow.
I just got a peek at a possible—plausible—future of how artificial intelligence could impact how financial planners interact with their clients and provide their services. It’s beyond anything I had previously considered, and if it comes to pass, it’s going to require a LOT of adjustment on your part, on everyone’s part.
The CFP Board recently came out with a new white paper misleadingly entitled “Harnessing AI in the Financial Planning Profession.” Misleading? You might think, from the title, that the paper is about use cases for AI in your office, but in fact, the paper represents a scenario learning exercise.
Scenario learning is a process where you get a bunch of experts and thought leaders in the room (15 in this case) and ask each of them to propose one or two things they believe might plausibly happen in the world as a result of (in this case) new future developments in artificial intelligence.
Then all these ideas are posted (I’ve seen this done with sticky notes) into logical clusters, and an analyst will then weave the different ideas together, and tell a story (the paper calls them ‘narratives’) about the possible future that they imply. (Shell Oil famously used this process to predict, and then successfully navigate, the oil shock of the 1970s.)
The white paper produced four of these narratives, called ‘illustrative futures’ in the text. One scenario was entitled: Financial Planner’s Best Friend, where AI tools become increasingly important in your office and advisors increasingly leverage these powerful AI capabilities into their practice management and service models, becoming more efficient and effective.
Yawn. I think this is what we all expect.
Another scenario was entitled Full Circle Finance. The story here is a major failure of AI-driven advice tools, which trigger a collapse in public trust of all things AI-related. AI fades into the background. Advisors still use AI tools for menial tasks, but it’s very much in the background. In this scenario, the white paper worries that there might not be enough financial planners to meet a growing demand for human advice.
Kind of interesting, although I wonder about the conclusion that Big Tech and fintechs in general will get so discouraged that they shift their focus away from AI. That part doesn’t sound the firms I know.
Next scenario: Silicon Valley Joins Wall Street. The story here is similar to the previous one, with a (I think small) twist. The Big Tech firms use their AI tools to muscle into the (primarily) investment advice space, becoming kind of like Wall Street firms, except instead of brokers, they’ll employ bots and avatars to tell people how to manage their portfolios.
These AI gadgets will tout superior returns based on optimized adjustments to current (ever-shifting) market conditions, and this pitch will take market share from wirehouses, broker-dealers, advisors, salespeople and everyone else—right up until some kind of major economic collapse or severe bear market impacts client portfolios.
At that point their investment advice will be seen to be generic and, quite possibly, not well adapted to changing conditions. (Think of a spreadsheet that assumes the same rate of return each year, only more sophisticated, instead assuming that the future will continue to be like the past, within narrow bands. This is basically the story of how Nobel laureates lost billions at Long-Term Capital Management.)
Once again, kind of interesting, and not implausible. At the end of the story, consumers shift en masse back to personal, human portfolio management advice. But if all AI does is manage portfolios, I think planners will continue to have market share on the planning side. I don’t think it will impact the profession that much, since asset management has already become somewhat commoditized.
That brings us to the scenario that scares me. It’s titled MyAI.
The scenario learning story told here is that AI assistants become increasingly embedded in the lives of mainstream consumers—think: really smart Alexa. The white paper proposes that “Big Tech, major retailers and decentralized platforms [??] dominate the financial landscape with integrated AI ecosystems that deliver hyper-personalized, seamless and trusted services.”
Instead of ‘services,’ substitute ‘advice’ at the end of the sentence, and I think that comes closer to what this scenario is getting at.
Alexa, assess my anticipated tax obligation based on current rates, and tell me how much I can convert from my traditional IRA to a Roth this year to fill up the 22% tax bracket.
Alexa, walk me through, step-by-step, how to create a private foundation, and tell me how I can maximize my charitable deduction by contributing to it over the next five years.
Alexa, I want my new baby to attend college when she turns 18. Project the future costs of a 4-year education at the state university, and at this particular private college, and suggest annual donations to a 529 plan that would, based on projected returns over the coming 18 years, that would fund that future expense. And please explore alternative means of funding that might be more tax-efficient.
It doesn’t take a lot of imagination to see how this could disrupt the core value proposition of many financial planning firms. Consumers would be initially attracted to a device that helps them with grocery shopping, makes Christmas gift recommendations, sorts out their budget, organizes their photos, tells bedtime stories to their kids—and gradually they start to realize that it also lets them navigate their complicated financial lives at the pace and detail that they want.
The scenario story doesn’t offer a lot of encouragement for the advisor readers. “Many professionals are displaced as AI commoditizes technical advice,” it says. “The only refuge for survival is to provide specialized, high-touch services where human empathy, behavioral coaching and complex problem-solving are indispensable… niche firms and adaptive advisors thrive by differentiating through human connection. The profession is not eliminated, but redefined and centered around the unique human skills that AI cannot replicate.”
So of course you’re asking me what I think is the best way to respond if this comes about by (so says the white paper) the year 2030.
The high ground
The tide of communization has risen a lot over the last 45 years, but relatively slowly. Used to be, creating efficient, cost-effective portfolios required the help of a financial planner. Used to be, only a planner with sophisticated software could offer retirement projections.
The scenario tells us that in 2030, we’ll say: used to be, if you wanted technical advice and expertise that comes with having the CFP designation, you had to turn to a financial planner who HAD the CFP designation. This scenario suggests that technical expertise itself can be commoditized—something that I think most of us were assuming was a generation away at least.
There’s obviously no guarantee that this story will come true in our near future; (I still kind of like the first scenario.). But I’ve always said that the ultimate refuge from this relentless tide of commoditization, the high ground that the tide cannot ever reach, is informed personal financial coaching.
That means being capable of eliciting from clients their goals and objectives in life, and reminding them to follow through on them, and participating in their journey, and then refreshing those goals as the earlier ones are achieved.
Lather, rinse, repeat for a prosperous, fulfilled lifetime.
I don’t think AI is likely to be able to elicit goals that the clients, themselves, may have buried so deeply that they’re forgotten and given up on—and revive them and make them practical.
I also think it’s unlikely that AI will be able to break the achievement of those goals down into manageable steps, and especially won’t be able to successfully nag the client into working on their own goals when the world outside is demanding all their time and attention.
They’ll do it for you, even if they would never do it for themselves. This is one of the most powerful insights I’ve ever articulated, and it’s perhaps the key to the profession’s future, if the scary MyAI scenario were to come to pass.
2030 is just four years away. This might be a good time to start making some plans for how you could adapt if the scary scenario were to manifest in our working lives.