Hortz: How exactly do you create and design an algorithm to perform specific functions like this?
Holt: This is actually the hardest challenge with artificial intelligence. And the reason is because you have to make certain assumptions to make it consistent across the board for all households that still has relevance and is not going to create an enormous number of false positives. Once an algorithm gets discredited, it is really useless in the field as professionals will look over and say, Oh, that's not a real issue. It's just a false light. Let's ignore it. So, the key is to create an algorithm that works with the most basic level of data that, oftentimes, is populated by direct-to-consumer profiling that they do on their smartphones or computers. This level of data is sometimes rounded or very vague. And, we needed a way to give immediate feedback no matter what the level of data, whether provided from a validated source or whether anecdotally provided in a survey or Fact Finder experience.
This is really critical because when you onboard a new prospect or potential household, you want to get that feedback right away as to warning signals based upon the current information that you have on them, as opposed to waiting for them to give you all the data perfectly when they are an existing client three, six, twelve months into the relationship — and we still have not talked about glaring red lights or big holes in the financial plan that that are potential pitfalls they can fall in and never come out of. Therefore, the key is to provide something that is high level enough that does not pretend to be so accurate that we argue over the details, and rather, gives you an indication that this is perhaps something that you want to “check out”. Contrast this with something that has an actual valuation score, like the risk tolerance systems of today, including Riskalyze, giving a specific numerical score. We found that it was better to give that information graphically as an indicator and a range.
Hortz: How does this help create a better working relationship and better financial decisions between financial professionals and their clients?
Holt: The most important part about this is that it helps the financial advisor focus and tell a story. A story that we can all relate to by our experiences or because we have lived some number of years and we know other people (or our own family members) that have had calamities and, so therefore, we need to create an opportunity to bring up the relevance of those scenarios in their lives.
Often, we find that financial professionals are focused on the areas that they have expertise on, or the products that they sell, and they spend their time talking about those solutions, as opposed to problems that they may not be comfortable with. As an example, life, disability and long-term care tend to be under addressed calamities until they happen to you. The depth of relationship building in bringing up other topics of conversation with a household is really critical to proving that one has industry credibility as a holistic advocate. They do not simply talk about investment management all the time, or life insurance, or banking but rather talk about the bigger calamities we all know that are possible and also bring ideas to the table that might help serve them. Our Target-map financial progress funding module, which looks very much like a financial planning tool, is the next obvious step for someone who indicates a red or yellow signal. It is intended to then quantify the specific capital exposure of an event and what we should do about it- either financing it or funding it in a way that makes sense for their household.
Hortz: Any particular examples of how advisors can apply this tool with their clients?
Holt: We have already heard feedback from financial professionals using Signals in the prerelease. They have been showing clients their Signals and framing the conversation in a very similar way a doctor might when you go in for medical advice. A doctor might say to you, “Let’s look at your X-ray and review your preliminary bloodwork.” The X-ray, in this case is the analogy of an Asset-Map visualization of all your financial instruments and decisions laid out on one screen so we can get true transparency on what people are choosing to do, the decisions that they are currently making, and whether that serves them.
The second analogy of the blood test comes from Signals, which is financial feedback relative to acceptable ranges, for example, ‘your blood work indicates that your cholesterol is high, or your BMI is in a good range’. And so, the key is that it enables an advisor instantly to create both the map (or X-ray) and Signals (blood work) that gives us feedback towards the direction we should take the financial wellness conversation.
And this has been really interesting, because once somebody sees that they are a green or a red or a yellow under each of these scenarios one might say: Well, why am I green? And what should we do to make sure that it stays green? Or why am I red and what do we need to do or take action on in order to fix that? What would you add to the financial Asset-Map in order to make that green? In fact, what we have enabled is that as soon as you solve the problem by making a decision, it instantly recalculates the signals to give you feedback as to whether you are now yellow, red, or green. And that's important because people want to see that their choices and decisions have an actual impact on their overall health financially.
Hortz: Does the continuing addition of financial technology get progressively more complex and harder to use or apply for advisors?
Holt: The answer is it really depends on how the advisor adopts technology. Are you using it as a client presentation layer or as a back office operational layer? In the latter case, you can delegate most of the actual technology work to those who are best suited for that back-office work. Financial advisors should spend more of their time in client facing environments. And if you are increasingly using these technologies live with a client, we call this “participation over presentation”.
If you are heavily in the presentation/participation mode, then you really want to understand how the tech works. And that is why it is critical that you only have one, two, or three tech platforms that an advisor really knows well. In the financial planning modeling of those platforms, their design, like Asset-Map’s, should be really geared for collaborative participation, as opposed to technical presentation. And the reason is because the barrier between advisor-client should be as thin as you can make it and still stay consumable to clients and common sense to a professional.
Thoughtful design needs to be focused on user experience that people can just understand, “get it” and then ask important detailed questions as opposed to asking the questions: How does this work? How is it calculating? It would make more sense to ask why are we investing here? Or is this insurance serving us? Or is it time to move this money to a trust? And that alignment of good questions can be achieved when the technology is simple enough for all parties to understand and comprehend.