February 24, 2016

Automation in Financial Services: Efficiency Booster or Job Destroyer?

As a close follower of financial news, I’ve noticed that robo-advisers—algorithm-based online portfolio management services—continue to be a hot topic.

While the debate over the eventual dominance, or lack thereof, of robo-advisers is unlikely to relent, there is one point of contention that is often overblown by the media: will robo-advisers actually disrupt and replace regular advisers; or, is it possible for advisers to adopt automated portfolio management and shift their focus to other wealth management services?

The media has framed this innovation—which sits at the nexus of finance and technology—in a variety of ways. Some argue this is a fad that won’t last past a few years and that slow adoption is proof that it is a bad substitute to the “real deal.” On the other hand, many contend this is a real threat to the adviser industry. The latter argument, on the worries of disruption and change, seems to be over-hyped.

One of the most enduring arguments against any type of automation is that it threatens jobs. And yet history has shown otherwise. Usually, the adoption of a new technology leads to improved working conditions. Sometimes, the decline of one type of job leads to the emergence of entirely new types of employment.

The Ford assembly line, for example, led to improved productivity and quality of the end product, and it also improved wages and working conditions for employees. Recently, many assembly line workers have been replaced by robotic counterparts. As a result, however, there is a greater need for supervisory roles and quality control specialists that monitor and improve the highly automated assembly process.

Similarly, computers and modern word processors have changed the way things are analyzed and written. Today, there are not nearly as many typists or computer operators. Other rote or difficult jobs, such as agricultural laborers or telemarketers, have also been on the decline. This is the cost of progress. On the other side, there has been tremendous growth in market research analysts, programmers, systems analysts, agricultural engineers, and other high-skill jobs. One study by Deloitte indicates that technological advancement has, after all things considered, led to job growth.

It’s hard to know the full impact of modern automation, but we know it can lessen the need for humans to perform rote or monotonous tasks. It also provides the opportunity for individuals to elevate their roles and rise alongside the improved efficiency provided by the automation. Tax prep, retirement analysis, goal setting, assuaging investor fears, and overall strategic financial planning will never be replaced by automated services. Efficient portfolio allocations, performed by robo-advisers, would allow advisers to spend more time on the other services. As robo-advisers grow and the debate intensifies, hopefully the media will give equal attention to both sides of automation—the potential threat and the potential opportunities.

By: Shree Dhond