Now What After Dow Jones Industrial Average Hits 20,000?
The Dow Jones Industrial Average hit 20,000. The aftermath was a barrage of media stories—some encouraging, others less optimistic.
The positive stories prompted investors to buy more equities in expectation of more future gain; the cynics foretold the forthcoming correction with a warning: Get out of stocks. The one common theme all the articles share is that, yes, something is going to happen next. And this something will likely show gains and reverses, followed by more gains and more reverses.
The problem investors have to wrestle with is the “when”, the “how much” and the reasonable amount of risk they can handle based on their life’s circumstances, goals and values. Predicting the markets is a treacherous affair that may bring riches—but if history is any indication, it is more likely to leave your net worth plummeting.
But, we’re only human. We can smell a rally, a hot stock or a winning manager, right? It’s tough being a spectator, sitting on the sidelines while the whisper of riches is more of a shout.
We’re smart; we read the business journals, we watch cable news programs, we buy books and newsletters that may give us a competitive edge over those who miss out on the action. The noise swirling around the markets is like a cat smelling catnip—and rational thought becomes more than merely difficult.
When the urge hits and the image of a soaring market paints images of retirement in Bora Bora, stop and consider the following:
- For every share of stock you buy, someone has decided to sell it.
- Achieving your goals is less probable when your emotions are swayed to make decisions that can easily be regrettable.
- While you might believe you can stand risk; chances are, you may not be able to stand as much as you think.
- There’s more to living a fulfilling life than being plugged into the market from morning ‘til night.
- Any well conceived plan has an alternate “Plan B”. What’s yours?
Unbridled enthusiasm may be a warning sign of unrealistic expectations, risking the safety and security of your financial life. The markets’ history is full of rallies and corrections, new highs and dramatic pull-backs, constant movement and reactions to short-term speculation. There are winners and losers—and the contest is not played on a level field.
Given this information, protect your financial security by avoiding the noise and focusing on strategies that move you closer to your life’s highest values. Your financial security and life’s values are more important than the dream of the bit hit.
- Have a written financial plan that outlines your goals, both long-term and short-term.
- Work with a team of experts who offer guidance and advice. Make sure those experts have your best interest in mind with no conflicts of interest.
- Have adequate reserves allotted for unexpected events.
- Take risk management seriously. Understand where and how your financial security can suffer a significant loss. Think: Death, disability, legal liability, uninsured losses and the impact of sudden, swift and meaningful unforeseen occurrences.
- Monitor and update your plan when something changes that impacts your goals or circumstances.
Financial success doesn’t occur because the Dow hit 20,000 or any market indicator posts new highs. Financial success happens when you tune out the noise and follow your plan.
Cyborgs Are the Future for Advisors
Becoming cyborgs is the way to go for financial advisers…blending robotics and humans into one organism.
You see, I am convinced that robo-advice models will succeed and prosper.
I am also convinced that human advisers will succeed and prosper.
I am further convinced that some of each will fail entirely and die, but in Darwinian fashion the most adaptable will survive and prosper. Smart financial advisers will work out how to become cyborgs and build an offering which is a blend of human and machine – or at least their practice will.
Despite the fear-mongering when it comes to robo’s the reality is that there are many great arguments for automated transaction systems, or robotic product delivery. Cost reduction for the consumer, cost reduction for the practitioner….efficiency, speed, convenience for all….elimination of the frustrating and time consuming service model supplied by the industry to low value transactional customers….and let’s be bluntly honest: some people DO just need a product solution at some stages of their life, and DO NOT need holistic advice at some points.
Robo-advice makes sense commercially, and it can meet a need in life stages planning for many consumers. It also happens to appeal to a segment of society who are happy to make their own decisions and transact from the comfort of their pyjamas during the ads in their evening television program, and who are unlikely to engage in full advice. It is worth remembering that this last type of consumer segment is growing at the expense of the traditional intermediated product delivery systems of distribution.
However, machines do not “manage” relationships and behaviour – humans manage humans. Humans tend to rebel against the concept (or slightest inference actually) that they are being manipulated or are at the mercy of computers and machines. Machines and automated systems exist for our convenience, don’t they? Nobody wants a “SkyNet”.
……So the human adviser remains in the equation……
When we strip out all the industry jargon and hyperbole the primary function of a financial adviser is to manage clients behaviour. We don’t really manage their money – other people do the actual money management. We don’t supply products….we source them from a supplier. What we do is manage their behaviour and expectations. We coach them. Machines don’t do that yet….and when they are able to (and they will be), most consumers will shy away from being managed by a machine.
But we cannot escape those arguments supporting robo-offerings as they make too much sense for clients and for us. In fact I suspect robo-advice will be a very good thing for smart adviser practices.
Believe it or not, I believe robo-offerings can help us get clients.
For most consumers there is a period early in life when their financial advice needs are fairly basic, and also there is a period later in life where all the planning has been done and consumers are moving into “drawdown” territory. In between those times, life gets somewhat busier and complexity increases substantially.
Advice delivered by humans should be focussed upon the complexity phase. Apart from the fact that this is the period of a consumers life when there are the most variables to consider in their planning needs, it is also the phase where behaviour management is a distinct help to the achievement of the consumers goals and objectives. Generally people will only do uncomfortable or new things if they have a high degree of trust and confidence in the person guiding them to do so, and establishing that level of trust – or the bond between two people – is where robo-offerings will struggle to compete.
However, when it comes to identifying a fairly simple need which has a product solution then robo’s will certainly be able to deliver a solution more cost effectively and faster than the human adviser can, who is bound by increasing complexity of their own called “compliance” every time they have to interact with another human being.
The smart adviser will identify those areas of their clients lives and those product solutions which work well for those times and find a transactional solution for their clients to access. They will build that transactional, no-advice, solution into the service offering that their practice puts into the market. In other words they will embrace and incorporate robo-offerings into their business model.
Not just because consumers want them or need them, and not just because it is cost effective to do so. Not even because we’d like to have a commercial revenue stream which sidesteps the more time-consuming (and therefore labour intensive and expensive) compliance requirements.
The reason smart advisers will do it is because it will help gather the next generation of clients for the firm before the complexity triggers drive them to seek advice elsewhere.
The robo-advice solution caters to those who have an identifiable need for financial services of one sort or another, but who do not yet need holistic bespoke planning. It is an entry point for consumers to become customers of the firm, and for the firm to then work upon converting those transactional customers into advised clients for the future.
Robotics are a part of our world and our future. We need to figure out how to make them a part of our business too, but in such a way that our business uses the robo’s, rather than being used by them. Humans and robo’s integrated into the same service business in order to deliver they type of solutions and assistance that consumers and customers and clients want at different stages of their life.
The future for the financial advisory practice is cyborgs.
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