By Financial Planning Standards Council
Technology has long been transforming how consumers bank and spend their money. Now, the advent of so-called ‘robo-advice’ is impacting people’s financial futures. Computers are increasingly used to automate investment choices, rebalance portfolios and make other financial decisions – potentially with long-term consequences.
While these lower-cost, computerized services offer the allure of artificial intelligence and large-scale data analytics, consumers would be wise to consider the bigger picture.
CERTIFIED FINANCIAL PLANNER® professional Cynthia Kett of Stewart & Kett Financial Advisors Inc. says, “Technology makes financial information accessible to a broader segment of the market. However, it should be viewed as a complement to traditional investment advice and portfolio management, not as a substitute for a CFP® professional’s involvement and guidance.”
In a bid to protect consumer privacy and address other robo-advice concerns, Canadian regulators are scurrying to develop standards governing the abundance of automated fintech services now flooding the market.
Among the regulatory issues is a need to control excessive concentrations of market risk, which could arise if too many consumers are automatically driven to similar portfolio allocations. Ensuring fintech providers create algorithms using sound and ethical methodologies that protect consumers from potential conflicts of interest related to the range of products made available to consumers through the tool is another hot-button issue.
Ms. Kett says she and other CFP professionals also worry that clients will seek out qualified financial advice after their investment decisions have been made, rather than before. Doing so can result in clients making inefficient or inappropriate choices. “Clients may take longer to reach their life goals because they’ve taken a detour, rather than the most direct path.
“Automated advice tools can lead some consumers to feel overconfident and/or to panic. We need mechanisms to protect consumers from making bad or impulsive choices before they make them, not after,” says Ms. Kett.
Part of the financial planning process can be automated using algorithms, but understanding clients’ needs and explaining alternatives requires direct human engagement.
“During face-to-face or even phone conversations, we discuss clients’ lives, goals, family, fears and health concerns. CFP professionals consider these key factors before making recommendations to clients. Financial planning is a caring profession, not an impersonal one. It’s like health care in that regard: you can’t deal with a problem without looking at a person’s overall well-being.”
Technology, regardless of its sophistication, can’t replace the role real-life human interaction plays in good financial planning. However, it can certainly complement it.
Ms. Kett’s advice: “Seek out a CFP professional at the outset for a holistic view of your plan before you implement robo-investment advice. Keep your CFP professional involved throughout your financial journey to ensure that you remain on track with your goals.”
To find a CFP professional in your area, visit FindYourPlanner.ca.
Choosing the best financial planner for you
Your choice of a financial planning professional is an important decision that will affect all aspects of your financial well-being, today and in the future. Yet in most Canadian provinces, there is no legislated standard in place for those who offer financial planning services.
An appropriately qualified financial planner such as a CFP professional meets stringent proficiency and ethics requirements, including high levels of education and experience and a written obligation to put clients’ interests ahead of their own.
Use the following tips to help find a qualified planner who is right for you.
BE PREPARED: Do some research to become familiar with financial planning terms and strategies. While a good financial planner will explain things as you go along, understanding the basics will allow you to be more involved in the process.
CONSIDER YOUR FINANCIAL AND PERSONAL GOALS: Financial planning is about finding the right strategies and taking the appropriate steps to help you meet your life goals. Take the time to reflect on what’s most important to you, both today and for the future.
UNDERSTAND FEE STRUCTURES: Your planner should disclose in writing how he of she will be paid for the services provided. Planners can be paid through the cost of products, a percentage of assets they manage on your behalf or a fee-for-service model based on hourly or set fees. Understand how you will pay for services and choose whatever model works best for you.
DEMAND COMPETENCE AND ETHICS: There are a variety of different designations in the financial services industry, some requiring minimal education such as day or weekend courses. The CERTIFIED FINANCIAL PLANNER designation represents the standard in financial planning, with strict education, experience, competence and ethics requirements. In fact, CFP professionals must annually attest to a written code of ethics stating that their clients’ interests will always come first.
PERFORM DUE DILIGENCE: Take the time to verify a planner’s credentials by contacting his or her professional body to confirm good standing.
GET IT IN WRITING: Insist on a written letter, sometimes called an engagement letter, outlining the specific terms of your agreement and any potential conflicts of interest. The letter should also clearly disclose your planner’s method of compensation and business affiliations.
Watch this video to learn 10 important questions to ask your planner.