Since the great recession, the financial services industry has experienced a technology renaissance of sorts. We think that the adoption of new technologies has improved the capabilities of the average investment advisor and helped improve investor outcomes. You should, therefore, expect your advisor to have the best technology available.

The application of Artificial Intelligence (AI) is a top trend in financial services.  AI is still deemed a threat to the old system of money management but is increasingly welcomed by the key demographic of advisors aged 35-44.  Additionally, among the top implementers of AI are independent Registered Investment Advisors, such as SWS Partners, because of the benefits it brings to investors.

One use of AI is found in behavioral finance software that helps determine client behavior and risk tolerance.  This alleviates much of the cognitive biases of both the advisor and the investor. Remember the old days where your broker asked you to define your risk tolerance on a scale of 1-10? In hindsight that would seem comical if we weren’t talking about your hard-earned savings. Today, computer software can analyze the investor’s behavior to get a more complete assessment of their risk tolerance so that market fluctuations don’t cause the investor to throw their financial plan out the window.

We generally think that the best path to an investor’s financial destination is saving money, fee and tax avoidance, and sticking to a plan. It’s the last item, sticking to a plan, that we see AI being of most use from a behavioral standpoint because it can help develop portfolios that are more closely aligned with an investor’s mental and emotional acceptance of risk. Again, a rudimentary questionnaire will never be able to do that. Without ongoing behavioral considerations, there is a likelihood for misaligned investment choices. We think this makes cookie cutter portfolios from Broker-Dealers an increasingly poor choice for investors. 

Money and technology are so closely related that if your advisor isn’t employing the latest technology, how will this equate to the risk in your portfolio? More broadly, how will it impact your financial destination? 

Investment managers must continuously upgrade their technology infrastructure to keep up with client expectations and best practices.  We think this will improve the client experience and make us better financial planners. After all, we can encourage our clients to save money, we can help them avoid fees and taxes, but the holy grail is helping them stick to their plan in perpetuity. We think that the use of AI—specifically when it comes to behavioral finance—is one way to help us as financial planners, help our clients stick to their plan irrespective of market fluctuations.