The virtual financial adviser is an interim step toward full automation. A new generation of financial salespeople are managing relationships via Skype and Google Hangout, all without ever meeting their clients in person. Tech-savvy investors want a personal touch but don't have time to trek to meetings. The brokerages with the most tech-savvy compliance architectures have approved social media channels for marketing. The firms' other IT challenge is grafting on archiving systems that allow firms to record client contacts in social media.
Human advisers working remotely are a bridge to the wave of full automation about to break over anyone in finance who manages client relationships. A full stable of fully digital wealth management firms deploy AI interfaces that cut out human advisers completely. Machine learning teaches cloud-based AI algorithms how to behave when a human client asks financial questions. Fully automating client relations cuts out the layers of back office people who processed client orders and designed financial products.
The end of overhead in wealth management means a drastically lower headcount. Employee compensation is the single greatest expense in the finance sector. Eliminating the lazy idiots kicking back and counting their bonuses will save money for clients. Part of the cost avoidance will undoubtedly leave more earnings on the table for the shareholders of automated brokerage firms. The SEC should breathe a sigh of relief at the dramatic reduction in broker misconduct complaints. Fewer human operators of any system mean fewer human-caused errors.
The creative destruction that the cloud / AI / Big Data paradigm brings to finance will change Wall Street for the better. Branch managers won't have to act in loco parentis for trust fund baby brokers because neither will be needed anymore. Client decisions aggregated into Big Data packages will arbitrage away the investment products that cost too much and deliver too little alpha. I suspect index funds and ETFs will be the biggest product winners because they are simple to build, cheap to operate, and easy to distribute to AIs from wholesale channels.
I wish tech had been this mature when I was a financial adviser from 2005-2006. I could have blasted out emails, scored social media followers, and closed accounts electronically. Tech has finally caught up to the needs of sophisticated clients.
Nota bene: Alfidi Capital is not a registered investment adviser (RIA). Anthony J. Alfidi is not a financial adviser.