Edelman: Fintech Will Change Advisory Game

October 02, 2017

ETF.com: Will fintech replace advisors?

Edelman: It’ll replace many of the functions advisors currently provide. As recently as the 1980s, people—to find out what their stock was worth—called their broker. Or they went to Paine Webber, and they sat in the lobby and watched the ticker go across.

The only way to find out the value of a stock was to literally call your broker on the phone. Well today it’s on your smartphone for free, instantaneously in real time. So the broker who used to devote his career to phone conversations with his clients about the value of their account, brokers don’t do that anymore. Clients now have full access to that online.

The blockchain similarly will eliminate many of the administrative services and functions that advisors have traditionally provided. The client won't need the advisor to tell them what the value of their account is or to facilitate the rebalance of their portfolio.

What the client will need the advisor for is the strategic analysis and advice that the technology isn't designed to provide. Blockchain is simply a transaction protocol; it isn't an advisory one. So advisors will find their jobs changing, that the services they provide will become different. They will, in many cases, become more valuable to their clients, rather than less valuable, provided that they are, in fact, capable of providing advice. If all they do is trade for the client, they’ll become obsolete, because the client will be able to do that without them, just as they can now.

ETF.com: It strikes me as interesting that the increase of automation also seems to be leading to increasing the demand for customization in other areas.

Edelman: Yes. That, again, goes back to the importance of advice, because currently, if you go to a mutual fund, you're going to own the identical portfolio of every other investor of that mutual fund.

If you go to a typical advisor, the portfolio you get will be the same portfolio all of the other clients are getting, a mix of mutual funds. But the client of the future will have a portfolio that’s truly unique—a portfolio that’s custom created just for them by their advisor, with the support of technology for analysis and data and such.

But the fundamental work of analyzing what that portfolio should look like, and explaining it to the client, and being able to answer the client’s questions, will be the core work of the advisor of the future.

 

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