Note from the Publisher: Oh gosh, we just read a great article at OnWallStreet about “behavioral finance” and how that will be the next frontier for advisors, if they want to survive the double one-two whammy of the DOL Fiduciary Rule and the onset of robo-advisors. Where do we begin? The story says that advisors will have to delve deeper into their clients financial stories to craft portfolios and that will give them the edge over robos and the key to survival, and they advocate getting certification in behavioral finance as well. Not a bad idea, but our question is, hasn’t this always been part of the normal duty of a wealth manager anyway? Or shouldn’t it have been?
At any rate, our CEO is a big fan of “market behavioral analysis” in the markets at large, which he takes into account when trading institutional funds, but the onset of black box trading has removed much – but not all – of the emotions that used to dictate maket ups and downs. Ditto for robo-advisors. They CAN’T talk to their clients, by virtue of being an algorithm – yet. BUT, remember, there’s that little thing called “artificial intelligence” that is gaining more traction, so at some point, robos MAY be able to offer some degree of financial counseling as well. All we’re ultimately saying is stay ahead of the curve, folks.
“Is behavioral finance the new frontier — and revenue source — of the financial advisory business?
It might have to be. With the introduction of the Department of Labor’s fiduciary rule, and the advent of robo advisers, planners are facing an existential crisis, said Sarah Newcomb, a behavioral economist at Morningstar, during Financial Planning’s webinar “Behavioral Finance Techniques: Best Practices Beneficial to your Clients.”
Sooner, rather than later, “the only [advisers] left at the table will be those dealing with the emotional side of money,” added Newcomb, who also heads behavioral research for Morningstar’s HelloWallet unit.
‘Robos will do a better job at asset allocation but they can’t create a safe space where people can be vulnerable talk to another person about money without shame.’
The future of financial advice will be analogous to concierge medicine, where doctors can charge premium prices by carefully monitoring wellness, rather than just seeing patients when they’re sick, United Capital CEO Joe Duran said during the webinar, held on Thursday.”