Artificial Intelligence: Friend or Foe?

Schwab recently launched a free financial planning tool. It’s self-guided tool is called Schwab Plan.

Free financial planning

Investors fill out a short questionnaire in which they input their income, investments and assets.  “Advanced technology” then runs 1000 simulated market project and computes the probability of reaching the stated goals.

Investors can then review the plan, alter it to account for changes in their lives and consult with Schwab to help them implement it.

Schwab notes that it’s “the only large retail brokerage to offer complimentary financial planning to all clients.” 

Previously Schwab rolled out a subscription pricing plan where investors pay $30 a month for access to  an advisor (virtually) who provides asset management advice, among other services.

We all know that asset management is basically a commodity.  One observer correctly noted that, with this move, Schwab is now “commoditizing planning.”

Schwab recognizes it’s walking a tightrope as it competes with RIAs while seeking to maintain their business.   Chief Digital Officer Neesha Hathi explained that some clients will still need to consult with a trusted financial advisor because “technology doesn’t replace the power of trusted human relationships and connection.”

Do you buy it?  Or is this the first encroachment on your business which is likely to be followed by more sophisticated offerings, as artificial intelligence continues to improve?

What’s next?

In January, 2019, Forbes contributor Jay Adkisson wrote a fascinating article entitled: Artificial Intelligence Will Replace Your Financial Adviser - And That's A Good Thing”.  I think you can tell where this is headed.

Adkisson believes artificial intelligence is much better at taking financial information and preparing a financial plan than human advisors.  Here’s the essence of his argument: artificial intelligence can easily digest all financial historical data, determine historic trends, and access each and every current source of information to have an up-the-second understanding of the markets. Here, simply stated, the human financial has no chance against artificial intelligence.

Adkisson notes that artificial intelligence is “always on.”  The benefit of this technology is that a portfolio can be re-allocated consistent with the client’s wishes every second, rather than waiting for the quarterly or semi-annual review performed by the human advisor.

Other benefits are even more impressive.  Artificial intelligence can keep track of the entire IRS Code and perform “instant calculation” to improve tax efficiency.  It can make adjustments to 529 plans based on changes in projected tuition.

But the greatest benefit may be the elimination of human error and emotion.

Adkisson noted that AI financial advisors are “already here” and are “quite likely to over the sector entirely within the next decade.”  In my research for this blog, I did locate at least one advisory firm, Pefin, that holds itself out as an “AI powered Financial Advisor.”

Of course, we heard the same dire prediction about robo-advisors, and the advisory industry continued to thrive.

What do you think?  Is artificial intelligence poised to  transform (or even destroy) the advisory industry?