As with most areas of our lives, the financial services industry is moving toward automation and away from human interaction. In a race to improve operational efficiency, financial services firms are embracing concepts like “intelligent automation,” “robotic process automation” (RPA) and “strategic automation investments.”

Automating processes and using models can make good business sense in some ways; however, it does not provide the bespoke experience we believe our clients should have.

Technology Should Enhance, Not Replace, Our Relationships

Technology is certainly a powerful tool in any business when we harness it to improve accuracy, keep track of clients’ information and streamline processes. Robo-advisors use sophisticated algorithms to calculate potential returns on investment, for example.

However, too often firms implement technology in ways that lower the quality of service they provide to their clients. Building personal relationships with clients has always been the foundation of the service we provide. That will never change, no matter how sophisticated technology becomes.

The key is to use technology to enhance our relationships, not to replace them.

According to Wired, a monthly magazine specializing in the way technology changes our lives. We must be “thinking conversation first, technology second…” Wired authors envision a world in which companies “create a human/hybrid intelligence.”

For a 2022 Vanguard Group report, researchers surveyed households with at least $100,000 in investable assets that used human advisors, robo-advisors or both. They found that clients of human advisors were more satisfied with the overall service they receive compared to clients of robo-advisors. Also, these clients perceived their human advisors to offer more value in three specific dimensions: portfolio value (i.e., optimal portfolio construction and client risk-taking), financial value (i.e., attainment of financial goals) and emotional value (i.e., financial confidence).

Like the authors of the Wired article, the authors of the Vanguard study also stressed that financial advisors can leverage technology to improve some processes, while some aspects of engaging with clients should remain in the realm of a traditional, non-automated relationship.

For example, the highest-ranked functions for which clients preferred human advisors included feeling understood, having a connection/relationship and having advisors work in their best interests and be empathetic to the client’s needs. In contrast, the areas for which clients preferred digital tools included simplifying their portfolios, diversifying their investments, managing capital gains and taxes effectively, and preventing details from being overlooked.

Only 4 percent of clients of human advisors said they would switch to a robo-advisor if they had to leave their current advisor.

At Carver Financial Services, we are dedicated to creating a more personalized experience while many other firms seem to be moving in the other direction.

We are also seeing a prevalence of firms and advisors using investment models for their clients, rather than designing custom solutions.

In many cases, models use automated questionnaires to determine clients’ basic levels of risk tolerance and broad goals. These models can serve as a starting point, but they should not replace critically important human interaction.

Models and robo-advisors can crunch numbers, but they cannot replace the valuable intuition, compassion and empathy you will receive while working with an experienced advisor regarding your individual situation. Your advisor’s experience, education and knowledge will always surpass that of automation when guiding you within the context of your unique circumstances regarding income tax, outside investments, fears and concerns, upcoming life transitions, and personal beliefs and values.

Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2021. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

The information contained in this post does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

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Also, because the trades have not actually been executed, the results may have under- or overcompensated for the impact of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. Returns will fluctuate and an investment upon redemption may be worth more or less than its original value. Past performance is not indicative of future returns. An individual cannot invest directly in an index.