(Bloomberg Opinion) — I see a personal trainer five days a week, and I am now in the best shape of my life. I could not have afforded Doug when I was younger — and I wouldn’t be able to now, either, but for technology. Doug lives on the West Coast and trains me (and dozens of others) through an app. He programs exercises I like, accounting for any injuries, monitors how hard I work, corrects my form and sends me motivational messages. With AI, he now has the potential to make even more custom workouts for even more clients.
I suppose AI could replace him entirely, but the fact that Doug is a real person is important. I know he is watching, and I believe he is invested. I feel like I’ll let him down if I don’t show up every day. I would not care so much if he were a bot.
My experience with Doug is a case study in how to use technology to deliver what was once a high-end 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 about to be transformed. Just as the industrial revolution changed the way goods are manufactured and consumed, so the technological revolution will do for services. Once something can be made at scale, the market for it can expand and be segmented; some people may want (and be able to afford) Birkin bags, while others will prefer canvas totes. The same goes for financial planning.
Financial planning is already in state of transition. First, the move to defined contribution pension plans and rising life expectancy means more people need advice. Planning for retirement isn’t easy; you don’t know how long you or your spouse will live, or what health issues will come up, and yet you have to decide how much to save, spend and invest. Sometimes you will just need someone to talk you out of selling when the market dips.
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 take on only 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 first the early adopters were millennials, who were more comfortable dealing with technology and did not have complex needs. Now AI can provide even better advice, more tailored to the individual needs and capable of chatting like a human advisor. It can even be trained to anticipate the behavioral quirks that keep people from making less than optimal financial decisions.
All this 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 portfolio customized for me and for some basic communication. That 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 hard conversations about such issues as the viability of financing your 40-year-old son’s music career and end-of-life costs. I suppose AI bots could get better at these kinds of discussions, but — would you really want to check in with a bot after your spouse dies and you are taking on the household finances for the first time? Or when your child is facing an expensive illness? People often rely on their financial advisors during hard times. And they are willing to pay a premium 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 give you lots of 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 still have the hard talks. If you have less than $100,000, you’ll probably be relying entirely on technology to manage your money — which, at least when it comes to portfolio construction, may soon be just as good as a high-end 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 in better financial shape, too.
Elsewhere in Bloomberg Opinion:
For more, subscribe to our newsletter.
To contact the author of this story:
Allison Schrager at [email protected]