Financial advisors will find themselves servicing more clients as margins shrink from commoditization of investment management, and those who survive will automate basic planning and be paid to help clients reason, an IBM executive predicts.

“Advisors are no longer just selling benchmark performance, which is the search for alpha, they are selling financial wisdom, which is the so-called gamma added-value of the relationship,” said Paolo Sironi, IBM thought leader with Watson Financial Service. “This might also change their compensation model to by the hour, much like lawyers, instead of being based purely on percent of assets under management.”

Sironi, who authored the book Fintech Innovation (Wiley, September 2016), was among the speakers Thursday at the Advicent Innovation Summit, where he discussed the future of financial planning and the impact that automation will have on asset allocation, rebalancing, customer servicing and reporting.

“To survive, advisors must automate as many planning services as they can to free up their time for reasoning services to help clients make financial decisions,” said Sironi.

“Advisors are becoming consultants," he maintained. "They don’t seek subjective results as much but they do help their clients make the best decision for themselves and that takes time, which is where the hourly rate will set in because the value of advice is trending away from the product the client buys.”

The problem with advice-based compensation, according to experts, is that there is no baseline norm for an hourly amount to charge and regulators have not provided guidance. Paying a fee not based on asset under management provides clients the opportunity to frequently question the value of the service since the advisor’s fee is not paid out of investment earnings, they say.

“Advisors may be intrigued by retainers or subscription-based services, but transitioning from AUM may prove to be more difficult than the transition from commissions because it requires a more deliberate plan and effective communication,” said Dennis Gallant, president of GDC Research in Sherborn, Mass., who was a participant at the conference, at the Convene Conference Center on Old Slip in downtown Manhattan.  

Sironi also said advisors can look forward to more interactive technology that will keep their clients engaged in the planning process for longer periods of time.

“Gamification tools are emerging in which clients reach their financial goals by going through steps and stages on different computer screens and those screens present scenarios of market advances and market declines, for example,” Sironi told Financial Advisor. “We’re seeing more financial technology that’s visual, employs graphics and that's fun because the client gets lost and distracted with just a lecture by the advisor.”

One engagement mechanism that's quickly emerging in fintech this year is augmented intelligence, which is technology that supplements human technology rather than replacing it.

“Augmented intelligence is the method that financial advisors will be using to help their clients conceptualize the reasoning they need to make financial decisions by relating events in the current financial market and scouting out potential declines very fast,” said Sironi. “Augmented intelligence as opposed to artificial intelligence accelerates the reasoning services of a financial advisor that otherwise might take a lot more time by helping clients understand the pros and cons of the decisions they are faced with.”

Sironi further informed the audience of financial advisors that the high-net-worth market will no longer be the haven it has been.

“Segmentation will not be by wealth but rather technical literacy because high-net-worth individuals are known to adopt solutions that were designed originally for the lower-income demographic but because it's convenient and it adds value, the wealthy use it," Sironi said. “Whatever market you are serving, whether it’s wealthy or not, experience will need to be consistent because added value will be measured according to the complexity and richness that an advisor's services bring to the equation.”