Rise Of The Machines?
When it comes to long-term or large-scale investment for an individual who does not have a background in finance, the success (or failure) of the endeavor depends almost entirely on the acumen of the financial advisor. If he knows his job, champagne rains down from the heavens; if he doesn't, I'd rather not discuss what falls from the sky instead!
However, recently, a new trend has started making the rounds in the business journals & periodicals: "Robo-Advisors". Apparently some of the wealth management firms have been convinced that a well-written software application can do the job of a financial advisor in a fraction of the time & for a fraction of the cost. Several firms have hired in-house programmers or contracted the assignment out to established software companies like Apple & Microsoft & expect to begin beta testing this summer.
Presently, the income of a good financial advisor anywhere in the world is as generous & steady as that of a competent lawyer in the US or an efficient doctor in Pakistan. Is there cause for concern for the financial advisor community? Most financial advisors think not. Because, to paraphrase a line from one of my favorite Hollywood movies, "Stealth", there are some assessments that even the most advanced computer can't handle & therefore must leave to human beings.
Automated Assessments
Malcolm Forbes once said, "Millionaires don't believe in astrology. Billionaires do."
In effect, in order for a financial expert to be all he or she can be, it wouldn't be a bad idea to acquaint oneself with the basics of subjects like astrology & numerology...& therein, as the Bard would say, lies the rub. A budding financial professional understands better than most that an achievement is only as important as it is cost-effective. If learning anything cost a fortune, it would either take several years to recover the expenses or else be a total waste because the bills never get fully paid.
Fortunately, when it comes to subjects like astrology & numerology, there are literally dozens of websites that offer an excellent foundation in these fields. I (along with many others, no doubt) have gone through countless tutorials & learnt enough to know my way around the profession. But what an oddity! Professional astrologers & numerologists are still making as handsome annual revenues as they did before the arrival of free online tutorials. Why? Because designing a personalized assessment for a client be it in fashion or finance requires an assessment of the client personally & not just what the client can furnish in words & numbers. No computer can do that.
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It is crystal clear that robo-advisors are never truly going to replace human financial advisors, any more than slot machines could ever replace poker. Why? For the same reason that Japanese businessmen still prefer to hold important meetings on a face-to-face basis: Nothing trumps looking into the eyes of a client, competitor, ally or enemy.
But that doesn't mean the robo-advisor project is not worth pursuing. Take the example discussed earlier about astrology & numerology tutorials. Studying them wouldn't turn anyone into a professional astrologer or numerologist; but it can provide enough of an understanding of the field to know how to recognize & value the genuine professionals in said field.
The same goes for robo-advisors. From Bernie Madoff to Kamran Kayani, the world has more than its fair share of suspected & proven conmen. Teaching ordinary people how to recognize a fraudster before he or she harms their interests (instead of after), will not only contribute to overall human welfare, it will actually increase the importance & standing of competent financial experts. Therefore, most financial advisors heartily support the robo-advisor project & wish the programmers involved nothing but the best.
Pertinent Definitions
The title "Financial Advisor" is relatively uncommon in Pakistan. According to the National Database & Registration Authority (NADRA) Computerized National Identity Card (CNIC) professional classification system, it is (probably) replaced by the title of "Financial Expert". While different countries define these titles differently, given below are basic definitions that serve to provide a broad-strokes picture of what these terms mean.
Investopedia (investopedia.com) offers the following information on financial advisors:
What is a 'Financial Advisor'
A financial advisor is one who provides financial advice or guidance to customers for compensation. Financial advisors (or advisers) can provide many different services, such as investment management, income tax preparation & estate planning. They must carry the Series 65 license in order to conduct business with the public. A wide variety of licenses are available for the services that a financial advisor can provide.
BREAKING DOWN 'Financial Advisor'
'Financial advisor' is a generic term with no precise industry definition, & many different types of financial professionals fall into this general category. Stockbrokers, insurance agents, tax preparers, investment managers & financial planners are all members of this group. Estate planners & bankers may fall under this umbrella, as well.
The Investment Advisers Act of 1940, a U.S. federal law, was enacted to regulate the actions of investment advisers/advisors. Advisors are administered by the Securities & Exchange Commission.
Your Dictionary (yourdictionary.com) provides the following explanation of what it takes to be known as a financial expert:
A term defined by the Sarbanes-Oxley legislation that was passed in 2003, which requires that at least one member of the audit committees of boards of directors is a financial expert. Although the law issues guidelines for what a financial expert is, it is up to each board of directors to make a determination using five key qualities outlined in the law.
A financial expert must:
1) understand Generally Accepted Accounting Principles (GAAP) & financial statements;
2) be experienced in preparing or auditing financial statements of comparable companies;
3) have experience accounting for estimates, accruals, & reserves;
4) understand internal accounting controls;
5) understand the functions of an audit committee.
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