With the growth of new information technology, and the additional comfort users have with life online, the financial services industry has come up with new ways to deliver financial advice. At the extreme, there are a few new services available that attempt to automate the personal financial planning and investing process. I’m excited about these new services, but at this time, I don’t believe we can totally automate our financial lives.
New services are emerging that attempt to automate the investing process. Examples of these are Betterment Investing in the US and BMO InvestDirect in Canada. In the case of BMO InvestDirect, users go thru an information gathering process and then BMO’s investment specialists will recommend portfolios guided by a standard model. So the InvestDirect service is quasi automated as it combines advice from a licensed rep with the benefits of automating certain aspects of the portfolio construction and monitoring process.
There is a lot of new research being done in the area of behavioural economics. Much of the research is uncovering new psychological aspects of our financial choices. Researchers are confirming what many practitioners already know: there is a difference between how we should invest and how we actually do invest. The psychological aspects of financial planning are critically important to providing good financial advice. Practitioners also know that “good” advice is not always the most efficient or rational advice. Many times, the advice that “good” financial planners give is based on non-economic criteria. These non-economic criteria often include making clients feel “peace of mind”. This peace of mind enables clients to spend less time and energy on their financial lives and more time and energy on other aspects of their lives that matter more to them. This is the key to providing good financial advice. Good financial advice is personalized, but also holistic.
Automating the process of financial planning is appealing, but automation does not take into consideration personal psychological traits that are uncovered by a deep personal relationship and an information gathering process that at least in some part needs to be conducted face to face.
Unfortunately, many financial planners are really just selling financial products. And so the face to face meetings are more likely part of a psychological sales strategy. For clients of these advisors, online services that attempt to automate the financial planning process will be a great benefit.
