Diagnosing Before Prescribing

Over the past few decades, we’ve seen amazing advances in technology. From computers that fit in our pockets to cars that drive themselves, we’ve been trained to believe technology can make every aspect of life better—including our finances. 

Algorithms can now build a "perfect" portfolio. We can now monitor our investments from apps on our pocket-sized computers. We no longer need to pay a middleman to manage our money. We have all the tools we need to deal with our finances, all by ourselves. 

But these products and their marketers are ignoring one big problem: We’re still human. 

Technology can solve many underlying problems, but it can also struggle to understand human behavior. For example, an algorithm may build a "perfect" portfolio, but it won’t be able to walk us in off the ledge when we’re scared and ready to jump. 

The math yells, "Stay the course!" The human screams louder, "Get me out!" Guess who wins? 

That’s why I’m not too concerned about technology replacing financial professionals. Of course, some functions will be automated. Instead of panicking, we should rejoice. We’ll have more time to do the work that can’t be replaced by a formula or an app. 

In my book, The One-Page Financial Plan, I address this issue specifically. Yes, some people may discover they can do financial planning by themselves. But for most of us, we’ll need some help. Not because we aren’t smart enough, but because we recognize the benefits of working with someone who, well... isn’t us. 

So, how do we become the professional offering value that technology simply can’t provide? 

1- Diagnose Before Prescribing 

During that critical first conversation with a client, plan on asking a lot of questions. Don’t be the person to propose a solution two minutes after someone walks in the door. Take the time to understand each client’s needs. A cookie-cutter approach is a waste of time. 

2- Be Open About Conflicts of Interest

If we want to establish trusted relationships, we’ve got to give people a reason to trust us. Conflicts of interest aren’t deal breakers. In fact, it’s all but impossible to avoid them completely when money is involved. But people will react much differently to something they hear from us directly versus something they discover on their own. 

3- Be Transparent About Fees and Compensation 

There’s been a debate about this issue for as long as I’ve been a financial professional. I understand the hesitation. We’re worried people won’t understand, or they’ll question our advice. But times have changed. One of the big reasons people are drawn to technology-based solutions is the clarity around the price. The companies offering such solutions build transparent pricing models, so users know the exact cost for every action. That’s a huge advantage we can’t let go unchallenged. 

4- Help People Behave

People download apps to help them form new habits or to be more productive. But this technology can’t proactively interfere to change behavior. We can, in our role as trusted professional. We can help people understand when emotion drives their financial decisions. We can help people see that reacting to what is happening in the moment will hurt their future goals. 

That’s a short list of reasons why I’m not worried about real financial professionals being replaced by a piece of technology. We are so much more than an algorithm or an app. But we also need to help people see and understand our real value in the process of financial planning.

If you liked this article, I think you will LOVE what I am building at The Society of Advice.