Ever since the dawn of the industrial revolution some people have objected to the role of machines in modern society. Modern American society is no exception. If you watch popular movies from the last few decades you might come away thinking that we as a society should fear robots and intelligent machines more than most other things. From Skynet starting a war against humanity in The Terminator, to killer robots in I, Robot and Ex Machina to the new show Westworld our culture seems thoroughly paranoid about the dangers we face from super intelligent machines.
While these dystopian futures still seem far off and unlikely, other technological concerns are real problems today. In past decades, increasing numbers of manufacturing and blue collar labor jobs have been replaced by machines. In more recent years white collar jobs in the professional services sector have run into competition from software based and online services. Accountants now have to compete with online and electronic tax filing programs. Attorneys face competition from online legal resources that can prepare basic legal documents in a cheap and efficient manner. Even my profession is not immune—as a wealth management advisor I face competition from robo advisors and online discount brokers. Since this question has hit home for me and I have had to formulate an answer as to why (and when) one should hire a human professional service advisor or opt for a lower cost software based or online service.
Keep it Simple
As tempting as it might be to draw on the apocalyptic “machines will take over the world” fears out there or play on the latent Luddite tendencies of our culture, these are not good reasons to keep employing human advisors. Leaving aside the concerns that intelligent machines are an existential threat to humanity there are actually many good reasons to use their services. At the same time there are certain times a real life advisor is invaluable.
The usefulness of software programs to perform basic tasks like properly filling out a tax forms, preparing boiler plate legal documents or devising an optimized investment allocation has been known to professional service advisors in their respective professions for many years. Over the past 30 years as technology has improved professional service providers have increasingly used software and online services to do work more quickly, accurately and efficiently than we could before. What used to cost a law firm, accountant, bank or advisor many thousands of dollars in hardware and software is now available to the masses on relatively cheap devices for small monthly or annual fees. While some may see this as machines and software competing with human providers I see them as an efficient aid to human providers. Machines are quite good at boring, repetitive tasks that do not require much ability that is uniquely human. If you have a project that is basic and needs straightforward simple answers or services your advisor is likely to use technology to solve the problem. If you want to cut out the middle man and keep it simple you will probably be fine doing this basic input work yourself.
Humans Add Value
As the simple tasks mentioned above are passed off to machines human advisors have more time to practice both the art and science of their profession. While software and machines may be a great aid in completing these simple and mundane tasks they are not sufficient to practice most of what I term the art and science of professional services. These are areas where human advisors add real value by doing tasks that are uniquely human. As technology takes over more of the day to day administrative tasks of their work these are the areas human advisors should focus on. The following is a summary of some the major categories that fall under this description:
Almost every professional service provider today will advertise that is delivers great customer service. This is the main way we all differentiate ourselves from online electronic services. When you are a prospect it can be very difficult to know what exactly we mean by client service and what you can expect from us as clients. When this topic is brought up you should press an advisor on what it means to them. You should have also have a list of your expectations around client service and make sure they are committed to meeting your requests. Since most providers will agree to what you want to get your business I recommend looking at other objective metrics to judge how likely they are to follow through. When interviewing the service provider find out how long their employees have been with them both individually and on average. Firms that claim to have excellent customer service yet have high turnover of their employees don’t get customer service and likely won’t deliver it to you. No organization can treat its clients significantly better than it treats it’s employees for very long. Culture has its way of oozing out of a place and if the employees aren’t happy it will soon follow that the customers aren’t happy. You can always spot a place with a bad culture because they cannot hang on to employees and inevitably have high turnover rates. You should also ask them about client retention rates and their client to advisor ratios. For high net worth individuals seeking more involved wealth management services a ratio of 100 clients or fewer per advisor is a good ratio. Higher ratios are acceptable but as the ratio increases the service decreases.
If you currently have 10 accounts with 10 different institutions it is unlikely that you are tracking them all in the way you should. When it comes to investing, knowing and maintaining the proper balance of all your accounts is key. While consolidating and tracking all your accounts is possible to do on your own the fact is if you haven’t done it yet you likely won’t do it at all. Even a few years of a neglected allocation to cash can have detrimental effects on your long term financial goals. Having a point person like a professional advisor is a great plan to get things under control. Though you will likely pay them a meaningful fee the attention they give to keeping you properly balanced and simplifying your finances is more than worth it. The peace of mind that comes from feeling things are under control is often priceless.
A good professional service provider is one who is well connected to her community and has relationships with other professionals. The saying that “it’s not what you know but who you know” is never truer than in this case. Robo advisors do not have lunch with accountants, attorneys or other important members of your wealth management team. Human advisors do associate with other professionals and often times can get great advice for you at little or no cost simply because they have good connections with other providers. As your wealth grows so does the complexity of issues you face. At some point you need a personal CFO type of advisor who may not be an expert in every area but knows enough to ask the right questions about your wealth plan. This person should know your details but also have a 30,000 view of your entire financial life. If they are well connected they can get the right advisors in place. A good advisor will have a lot of contacts and knowledge of other professionals to share with you. A great advisor will have deep connections with many qualified professionals and beyond sharing knowledge will be able to connect you with someone who is helpful and a great fit to your particular needs. At the same time beware of advisors who try and do too much. The fields of investments, taxes, law and insurance are very complicated and it is unlikely that one advisor can be an expert in multiple fields at the same time. If an advisor wants to do everything for you it is likely they want to do so because keeping things in house makes them more money and not because it is in your best interest.
A good professional advisor will not only answer your questions and help bring resources to you but they will also proactively plan for you and ask questions you never knew you needed to ask. If your advisor isn’t bringing ideas and checking in with you on new topics you are likely missing out on the true value their expertise should add. On one occasion while on boarding a new client I asked him about outside investments he held. During this process we uncovered some assets he had forgotten about and which turned out to have significant value. After having them valued by an outside professional it was determined that they should be placed in a Trust outside of his estate. This move likely saved him $1MM or more in estate taxes down the line and was the sort of thing only a curious proactive human advisor could do for him.
The Human Touch
In closing, the recent advances we have seen in software and online based professional services have been a great aid both not only to individuals but also to professional advisors. Many advisors have been leveraging this sort of technology for years and as such have shaped their value add beyond the sort of work that these services replace. In many ways the difference between obtaining advice and having a Trusted Advisor has never been clearer. As you review your wealth management and other planning needs in 2017, ask yourself if your situation needs a basic online service or the ongoing advice and relationship only a professional advisor can deliver.
*The views expressed here are my own and do not necessarily reflect the views of Washington Trust Bank.
Scott D. Hedgcock is a financial planner who is passionate about educating helping others understand and reach their financial goals. When he isn’t at work Scott is at home with his wife and 4 kids helping take care of their small suburban farm just north of Seattle. Scott is employed as an Assistant Vice President with Washington Trust Bank in Bellevue, WA. You can follow Scott on Twitter @sdhedgcock or find him on Linkedin at www.linkedin.com/in/scotthedgcock