Why the future of finance can’t be hybrid
I attended a panel discussion this evening hosted by the SF CFA Society on “robo-advisors”. The panel and, of course, the audience were all…
I attended a panel discussion this evening hosted by the SF CFA Society on “robo-advisors”. The panel and, of course, the audience were all in agreement that the prevailing model in our industry is becoming one of technology-assisted human advisors: the so-called hybrid model. Given that I work for a company that is building a financial advice platform using software, I was the contrarian in the room. Nonetheless, the discussion made me realize something: human advisors’ bandwidth constraints are a massive social detriment. Let me explain what I mean.
If you’re feeling generous, there are about 250,000 financial advisors in the U.S today (and this number is declining). This very loose definition includes various employees of “banks, brokerages, insurers and other investment firms.” Only a fraction of these professionals are “fiduciaries” but they do provide advisor-like services to consumers.
If we assume that each of these people can handle 100 clients at a time then the current industry can only advise 25 million Americans at most. Given that there are roughly 250 million adults living in the U.S., only one-tenth of them could have access to a human financial advisor, even under these overly generous assumptions.
Clearly, financial services incumbents can’t serve everyone, even if they somehow quadruple their efficiency with better technology. The only way the “under-advised” and “under-banked” are ever going to get access to the financial services they need is if a fully automated solution gains mass adoption. It’s going to take time to get there but it is inevitable if we are going to truly democratize access to finance.