The evolution of advice

From managing people to managing advice.


There is a saying credited to the Greek philosopher Heraclitus that says that “the only constant is change”. This is as true for the interactions between people as it is for the interactions between people and machines – and financial advice finds itself at the intersection of these two.

On the one hand, we’ve got the rise of Artificial Intelligence (AI) that is threatening to disrupt jobs, and on the other, we’ve got a movement where financial advisors are becoming behavioural coaches rather than technicians. I believe that you need to make this shift to avoid being disrupted by AI and to enhance the value that you add to your clients.

Let me explain by starting with your value to clients. Most advisors have an elevator pitch about how they add value to clients. In many cases, it is something about independent advice, which sounds great until you realise that you’re anchoring your value in product selection. Wouldn’t it be better if you said something about “helping clients achieve their dreams” or “taking the stress out of retirement” rather than talking about the products that you’re going to sell to people?

Make no mistake, as a financial advisor you need to be able to advise on the money and select the best solutions for your clients. But there is a growing number of advisors who understand that clients have different hopes, dreams, fears, biases and so on. These advisors understand that two clients with very similar financial needs and resources may need to be treated differently or end up with different financial solutions. That value add is very different to offering independent advice on the products.

Many advisors who have bought into this attend Humans Under Management (HUM), which is a conference for financial advisors that was started by Andy Hart in the UK and now happens annually in both South Africa and the UK. The title is a pun on Assets Under Management and the strapline is, “Turning a money business into a people business”.

Turning a money business into a people business

Without trying to summarise an entire conference in a short article, here are some of my notes and take-outs from HUM SA 2023, which will give you a sense of the topics that were discussed:

When it comes to identifying scams, a clear red flag is when they promote a supposed “new way to build wealth”. The reality is that there is no “new way”, and the traditional method still works beautifully. You simply need to contribute to a diversified portfolio and give it enough time.
Behavioural coaching is about understanding the clients’ emotional drivers. This approach has led to different product recommendations such as advising a wealthy retiree who was terrified of running out of money to take a guaranteed annuity, even though there was very little chance that they would run out of money.
The most value you can add to a client is simplification.

Don’t refer to coaching because many people don’t want to be coached. You need to make it fun.
When you start working with a client, you’ll be in a “fix phase” that is fun for both you and your client because you are problem-solving and implementing solutions. However, once everything is in place, you’ll move to the “fine phase” where things can become boring. If you don’t intervene here, there is a risk of drifting apart. To prevent this, you need to move to the “flourish phase” where you get new insights and set new goals so that you return to the “fix phase” and repeat.

Now let’s consider the impact of AI. In 2017, I completed an online course through MIT to understand the impact of AI. At the end of the programme, I wrote an article called “What do artificial intelligence and robo-advice mean for financial advisors”, which you can read on my LinkedIn profile. My conclusion was: “We should see AI as an ‘employee’ that is amazingly efficient, always consistent, gets smarter every year, never forgets anything, doesn’t need sleep, is never sick and doesn’t expect an annual bonus. And one last thing, we need to think about the skills that advisors will need to thrive in a world where technical financial planning skills are no longer the primary requirement.”

The most value you can add to a client is simplification

This may have been truer in 2017 than now, as AI has jumped significantly since then with the advent of generative content. These jumps will continue over and over, which means that AI like Chat GPT 10 will become a genuine threat to jobs at some point.

Before you despair, let’s think about AI’s strengths and weaknesses. Machines are very good at research, crunching numbers, objective analysis and optimising solutions (managing money), but they are very bad at understanding people’s emotions (managing people). This means that AI will become a threat to advisors who manage their clients’ money and will complement those who manage their clients.

So, whether you choose to join the movement towards behavioural coaching or whether you want to future-proof your business from AI – you need to think about turning your money business into a people business.

To see how far you are on this journey, think back over the last year and count the number of investor roadshows vs the number of seminars on the psychology of money that you attended. I suspect that this will show that most advisors are managing their clients’ money rather than their clients. That’s okay because the shift is a process and not an event. So long as you choose to make the shift from managing money to managing people.

Fairbairn Consult is a Licensed Financial Service Provider and a member of the Old Mutual Group.