The Age of Machines

It’s only naïve advisors who discount machines as legitimate competitors. Considering that machines are as dumb right now as they are ever going to be, and that their capability is increasing exponentially, this is a bad idea.

Bottom line: Will machines dominate the financial services industry? Yes. It’s just a matter of how quickly, which segments and in what order. The fact is that machines get two times as smart every 12 to 18 months, and have been doing so for five or more decades (this is known as Moore’s law). How many financial advisors do you know who are twice as effective and twice as smart as they were two years ago?

Competition from technology will continue to get stronger, better, faster and more effective. Those advisors who try to compete on the basis of “hard skills”—things like crunching numbers, aggregating data, automating follow-up, portfolio construction and management, creating reports, and other things that are machines’ strengths—will likely not survive.

Simply put, you do not want to compete with machines. Only in the movies do humans win that battle. Smart human advisors will not attempt to compete but recognize that highly intelligent, fast machines and applications can help them deliver more client value while reducing expenses. They’ll get great at the things machines can’t do and find difficult to master: the “people skills.”

Think of another disruption that happened decades ago in the music industry—when the drum machine was invented, much to the dismay of many drummers. It’s a device that can be easily programmed to make any drum sound with perfect timing. How did the drummers survive? Many of them didn’t.

But consider Led Zeppelin. Robert Plant may have been the unique voice of the group, but their drummer, John Bonham (“Bonzo” to his fans) was the soul of Led Zeppelin. He brought something intangible to the band that was impossible to replace with a machine or even another skilled human drummer. When John Bonham died, so did Led Zeppelin.

So it’s important to remember that machines have no soul—and (probably) never will.

Just like the drum machine didn’t put the best drummers out of business, “robo” advisors won’t put the best financial advisors out of business. As long as they bring something intangible to their client relationships … soul.

The moral of the story is that it’s a bad time to be average. But average advisors don’t think they’re average. There are more than 300,000 retail advisors in the U.S. Statistically speaking, only 10% can be in the top 10%, right?

What’s the old behavioral finance story about Italian men? When surveyed, 88% claim to be above-average lovers. And 92% of drivers claim to be above-average drivers. The math doesn’t work. Ego prevents us from self-assessing as “average” and since there isn’t an objective test for greatness among financial advisors, denial among them is also the norm.

At the recent Inside Retirement conference in Dallas sponsored by Financial Advisor magazine, Gail Graham, the highly respected industry marketing expert and veteran of Fidelity and United Capital, described advisors’ websites as a “sea of sameness.” In a world where every advisor claims to have a better process, do a better job, provide better service and care more, how often can that actually be true?

Do you remember the joke about the two campers confronted by a bear at their campsite? One camper immediately starts putting on his running shoes while the other camper looks at him like he’s a moron and says, “What are you doing? You can’t possibly outrun that bear!” The camper with the running shoes responds, “I don’t have to outrun the bear. I just have to outrun you.”

Here’s an analogy and an acronym that will help you break out of the “sea of sameness” to outrun the machine bears and other human FAs.

There are 300,000 sailors in the U.S. Navy. Only 2,000 of them are SEALs. Navy SEALs are among the best trained, most disciplined, and highly skilled warriors in the world. The top 1%. The best of the best. Those stats are measurable. Can you imagine a sailor claiming to be as good as a SEAL?

When a defense contractor invents the robo-sailor, which sailors do you think will get replaced first? Which will be replaced last, if ever? Of course. It will be most difficult to replace the SEALs. Not only that, it may never be lucrative to build a machine to replace them. The R&D investment to build a machine that sophisticated with a market of only 2,000 units could be a poor business decision compared to replacing 300,000 units of a simpler device. In order to position yourself to easily steal (rescue) clients from other advisors and insulate yourself from being replaced by even the smartest machines—think and act like a SEAL.