If you’re making a living giving financial advice to clients, you’re probably overestimating how much better you are than a computer program. Can a human do a better job of building a tax-efficient
investment portfolio that’s continuously managed to adapt to
a client’s changing circumstances? Can a human sense when
a client is feeling most vulnerable to making bad investment
choices and provide instant feedback to push them in the right
direction? Can a human assimilate all a client’s personal and
business information, all their asset holdings, their employer
benefit options and the investment circumstances of their parent’s estate when giving advice?
Of course we can’t. Our brains have a finite ability to store
relevant information, and we can only evaluate a few moving
parts at one time. There is plenty of evidence from empirical
studies of cognitive load theory that humans aren’t computers.
The more complex the knowledge task, the more we can
benefit from technology that can supplement our limited
memory and processing ability. We’re also not very good at
acknowledging our limitations, so we likely need the help of
software more than we think we do.
There are also many specialized knowledge areas in financial
planning that have proven to provide great value to a limited
number of experts who truly understand, for example, chari-
table planning strategies or retirement-savings rules. But all
these tax rules are simply an algorithm — the expert has made
an investment in time and effort to learn the many rules and
effective strategies to gain an edge within the rulebook.
No expert can understand every possible strategy available
to a client. A good analogy is chess. Chess has its own arcane
rules and masters understand the strategies that give them the
highest probability of winning.
But technology allows computers to recognize these strat-
egies and test 200 million positions per second, and it now
dominates even the most knowledgeable human players. Mobile
phones now have the computing power to beat a grandmaster.
There are some planning software programs on the market
that help advisors and individuals make better choices, but
most agree that the state of financial software created to help
advisors make better recommendations isn’t as advanced as it
A look at the best strategic thinking on
how advisors can use software and other
IT tools — and what trends to watch
MAKING THE RIGHT