The current phase of technology is all about algorithms. Dirt-cheap computing power and the ability to put it in your hand, on your wrist or in your spectacles means we can have easy access not only to data but to solutions.
Humans are great data-filterers – our efficiency-survival behaviour is built on the ability to ignore vast amounts of irrelevant information. What we want are solutions that eliminate the need to pay attention to data, let alone sift, analyse and compute it.
These functions are disappearing into human history, and into the algorithms of our governing applications. I say governing, because eventually they will become default settings, just like the rules of thumb we used to avoid being eaten on the African plains a million years ago.
In one sense, financial planning lends itself well to algorithms because most of the specific aspects, such as deciding what type of protection and how much is needed, can be condensed to rule sets.
Likewise, it is not too difficult to design a questionnaire that divides people into five groups that correspond roughly to the level of risk they appear to be able to tolerate, although only a sharp decline in investment values will show whether they can in fact tolerate it.
But as serious financial planners should already know, the whole is greater than the sum of the parts. A financial plan assembled by applying rule sets to each aspect separately will not be a plan at all.
Software can finesse this to some extent but the human brain is still far better at dealing with a problem with multiple dimensions than software built on a limited rule set.
It is intuitive for an adviser to hold in their head multiple rules of the type: “If X and Y don’t work then ignore rule A and apply rule B unless you have already chosen rule D in relation to F.” Put too many of these into software and it crashes.
Such rules arise from experience, partly because of the multiple conditionality of the application of the rules – like those used by the medieval cathedral builders, which were passed down verbally in their guilds and never codified in texts.
For example, if you have looked at enough share portfolios, you can tell the difference between one created by an experienced investor and one created by a slavish rule-follower. As Fidelity founder Ned Johnson used to say, creating a portfolio is more like painting than calculating.
Although software and consumer-facing platforms will continue to deliver increasingly smarter guided advice propositions, they will not ever be a substitute for financial planners. And if it is going to takehours and hours to get a system to deliver what looks like a sensible answer, many will prefer to use a human.
Of course, if the regulators permit system providers to escape any liability for consumer outcomes from such guided advice then we do not have a level playing field, but even this should not be too much of a disadvantage.
Financial planners will simply tell people that those who use guided systems have no redress against anyone for the mistakes they make.
When real money is at stake, that will no doubt be enough to bring the right people to our doors.
Chris Gilchrist is director of Fiveways Financial Planning, a contributing author to Taxbriefs Advantage and edits The IRS Report