Automation Is an Asset—Not an Answer

by Frank Muller

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We’ve all been in that stressful situation where the cable is on the fritz, or a laptop isn’t turning on. And when we call the technical support number for help, we’re greeted by a robotic, impersonal, electronic voice. My heart still sinks every time I hear “press one for …” anything. When I am experiencing stress, nothing assuages that feeling more than the calming presence of a knowledgeable person guiding me through the issues.

That concept applies to more than technical difficulties, though. It’s the primary reason I advocate human-to-human connections in almost every aspect of our lives. Whether it be spiritual, financial, legal, tax, medical, ethical or moral we should in my view find trusted and believable parties with whom our best interests can be vetted.

The promise of technology is exciting and certainly a vital part of a sophisticated advisory or planning practice, as mentioned in Financial Advisor IQ’s “Robos Creep on Financial Planning.” But artificial intelligence is still a very long way from handling the emotions of stressed-out clients. With regards to investments and financial planning technology can assist in building and monitoring a portfolio but it cannot discern true risk tolerance through a few online questions.

Technology cannot sense the deep emotional attachment of one human being with another or with a thing. Technology cannot discern underlying fears that may reveal hidden or undisclosed information that may be vital to a successful plan.

Using technology to build better portfolios through a deep and intellectual understanding of the relationships between the utilized asset classes is a very good thing. However, the challenges that result from this approach, in my mind, are twofold. First is negative selection bias. Many of these tools are just backward-looking Excel spreadsheets that use predominately U.S.-based market indexes from the past 100 years.

This type of tool virtually eliminates so many other valuable return streams—private equity, long/short and global macro—just to name a few. The second issue I have is that current technology, and even contemplated future technology, still has no answer for the emotional nature of human beings as discussed above.

When it comes down to it, it’s the implementation of a fully diversified portfolio by a trusted mentor who understands how to lead people in times of stress—not an automated algorithm—that is most equipped to stand the test of time. Certainly, that automated algorithm is an important tool but not the end in itself.

When we sacrifice right for easy, when we prioritize cheap and convenient then inevitably society suffers. Yes, it is a convenient thing in the short term to have cheaper goods and services made available to us but inevitably when we ship off good jobs to foreign markets for cheaper, we end up creating more problems for our fellow citizens and neighbors.

When we reduce highly complex subjects like finances, wills, trusts, taxes, morals, education …. and reduce them to cheap commodities divorced of wisdom then one day in the future we will see the consequences of our actions.

This is not to say that more expensive is always better, that is a question of discernment and that will be discussed in a later missive. However, it is almost always true that the cheap and expedient fix for anything will lead to greater opportunity cost lost and the magnitude of that lost set has grown exponentially over time.

May Peace be with us all.