Fintech (financial technology for the Luddites among us) is changing our financial life, or at least how we manage it.
At the two-day In|Vest 2018 Conference in New York on July 10-11, developers of all stripes presented their wares. Ranging from robo advisor apps to proprietary software, digital products have moved from disrupting financial services to constructing different ways for us to function.
According to Kelli Keough, Global Head of Digital Wealth Management at JP Morgan Chase, we consumers are choosing the financial companies we work with based on the user experience, to which anyone who has tried to navigate a recently upgraded website and found that it is anything butuser friendly can attest. Although that frustration may not make you switch banks, it’s guaranteed to annoy you and may make you less inclined to make additional investments. In fact, 73% of consumers surveyed cite a firm’s digital capability as significant in their decision to increase assets, and 68% of millennials will fire family advisors if they lack technology. We all want synchronized design, a range of solutions, powerful data and analytics, and guidance—not jargon—so we can open an account, set our risk guidelines, move money, and trade our account, all in an integrated experience, and preferably on our smartphones.
Most of us have heard some sobering statistics: 7 out of 10 people have less than $1,000 saved for retirement, 25 percent of working adults have nothing saved for retirement, and two-thirds of Americans couldn’t pass a basic financial literacy test. But even if we don’t fall into these groups, 72% of us say that finance stresses us out, and we all want it to be easier to save and invest. Acorns, a micro investing platform, does that by seamlessly sweeping your change from purchases into an investment account, with diversified portfolios built by experts. Other digital solutions offer cutting-edge features that make it easier to see your accounts, manage finances, and make investments.
Some of us still prefer to speak to a human, and the ease of doing so will be dictated in part by the size of your assets. But even with a big bundle of assets, expect your advisor to make use of artificial intelligence (AI), which enables high-quality advice at a fraction of the cost. AI sorts through your activity to give your advisor insight into what is important to you at a given time. For example, it may look at your zip code, the price of your home, your spending patterns, and your current tax situation, overlaid with prevailing market conditions and interest rates, to determine how making college tuition payments will affect your retirement planning. And it does it in real time, so your advisor can deliver meaningful advice and a spot-on action plan. By crunching millions of data points, AI can even tailor content—such as information on how other families in your situation are funding retirement plans, or perform a financial ‘health check’—to give you a nudge.
All this raises a concern about data security. Anyone who has followed the Facebook fiasco knows that what you put on line is out there for the world to see. Be forewarned: we (i.e., your data) are the product, and that’s the price we pay for getting access to our friends’ activity stream and photos for free. Even so, AI can be a force for good, as it makes services affordable, gives holistic insights, permits unbiased advice, and is readily transparent.
Your advisors have an enhanced toolkit to help them. For example, eMoney Advisor has applications your advisor can use to develop a financial plan, analyze your personal data, and inform you about suitable options to help you reach your goals. It consolidates accounts, credit card balances, and investments, and depicts short- and long-term goals, with strategies to achieve them. “With a full, up-to-date dashboard of client information at their fingertips, advisors can better position their clients for success,” says Jess Liberi, Head of Product at eMoney. Wouldn’t you be more inclined to work with someone who has all of your information at her disposal? The more your advisor can automate, the more time she has to spend on guiding you in sound decision making. Another tool, Clearnomics, lets your advisor create customized charts to use in solving ‘what if’ situations—such as the impact that trade wars can have on your portfolio.
Not all of us will feel comfortable relying on machines to make our financial decisions, but most of us may opt for a hybrid solution—data tools to do the initial spade work combined with a human touch to offer support and guidance to solve problems—as the world of financial services continues to evolve. In fact, 70% of us prefer the combined solution, says Wells Fargo’s Eduardo Queen, Head of Digital & Automated Investing.
And for those of us concerned about using our investment dollars to make a positive societal difference, environmental, social, and governance (ESG) investing has moved from the fringes into the investment mainstream. The Principles for Responsible Investment, created 12 years ago by 19 pension funds, boasts 2,000 signatories, collectively managing $80 trillion in assets, according to Michael Jantzi, CEO of Sustainalytics, a global leader in ESG and corporate governance research and ratings. The trend is growing among women and millennials in particular to work with advisors who deliver both competitive returns and positive societal outcomes. You can track companies’ sustainability scores on more than 2,000 publically traded companies on Yahoo Finance.
There’s no escaping it: machines, apps, and AI take are poised to manage more aspects of our lives, finances included. Although loss of privacy is a downside, the benefits are better advice, tailored just for us, delivered precisely when we may need it most.