(Bloomberg Opinion) — I see a personal trainer five days a week and am now in the best shape of my life. I couldn't handle Doug when I was younger – and I wouldn't be able to now, but for technology. Doug lives on the West Coast and trains me (and dozens of others) through an app. It programs the exercises I like, calculates any injuries, monitors how hard I work, corrects my form and sends me motivational messages. With AI, he now has the potential to do even more custom workouts for even more clients.
I suppose AI could replace him completely, but the fact that Doug is a real person is important. I know he's watching and I believe he's invested. I feel like I'm letting him down if I don't show up every day. I wouldn't care so much if he was a bot.
My experience with Doug is a case study in how to use technology to deliver what used to be high-level personal service to the masses. It is the future not only of fitness, but also of financial planning.
In fact, the entire service sector is poised to transform. Just as the industrial revolution changed the way goods are produced and consumed, so will the technological revolution for services. Once something can be made to scale, the market for it can be expanded and segmented; some people may want (and be able to afford) Birkin bagwhile others will prefer canvas totes. The same goes for financial planning.
Financial planning is already in transition. First, the move to defined contribution pension plans and increased life expectancy means more people need advice. Planning for retirement is not easy; you don't know how long you or your spouse will live, or what health issues will arise, and yet you must decide how much to save, spend, and invest. Sometimes you just need someone to stop you from selling when the market goes down.
A prevailing theory is that the more money you have, the more financial advice you need. But everyone needs help. And the less you have, the smaller your margin for error. Good advice is less about beating the market than about planning and risk management.
Traditionally, financial advisors—the good fee-only ones—would only take on higher-net-worth clients, usually people with at least $1 million. But robo-advice, which has been around for more than a decade, changed the economics of the field. Automated asset allocation became available to more people, regardless of net worth.
At the beginning of early adopters were millennialswho were more comfortable with technology and did not have complex needs. now HE can give even better advicemore adapted to individual needs and able to talk as a human advisor. It can even be trained to predict behavioral traits that prevent people from making less-than-optimal financial decisions.
All that said, the future is probably a hybrid model—the financial planner equivalent of my personal trainer Doug. In this hypothetical future, my financial advisor—let's call him Warren—uses AI to help design a tailored portfolio for me and some basic communications. This leaves Warren more time for his primary function: managing our relationship.
A good advisor is part financial planner and part therapist. They will force you to have difficult conversations about issues such as funding your 40-year-old son's music career and end-of-life costs. I suppose AI bots could improve on these kinds of discussions, but – would you really want to check in with a bot after your spouse dies and you take over the household finances for the first time? Or when your child is dealing with an expensive illness? People often rely on their financial advisors during difficult times. And they are willing to pay a price for a human touch.
So far, the market for AI-assisted financial advice is small. But growth and segmentation are inevitable. If you have a trust fund, your advisor may use some technology, but still take a lot of your time and attention. If you have more than $100,000 but less than $1 million, you'll probably end up with an AI-powered human advisor who will keep an eye on your portfolio and continue to have tough talks. If you have less than $100,000, you'll probably rely entirely on technology to manage your money — which, at least when it comes to portfolio building, may soon be as good as a top-tier advisor .
Like I said, Doug has me in the best physical shape of my life. It's not crazy to think that the same AI-assisted model could help a lot of people get better financially as well.
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To contact the author of this story:
Allison Schrager at (email protected)