Back to the Future

Predicting the future is hard. As one futurist noted: “there is no data for the future.” But making a prediction about the future can be an important step, especially during periods of great uncertainty. This describes the situation CFP Board faced in 2015, when rapid changes threatened to upend the financial services marketplace. Prior to 2015, digital advice providers (then called “robo advisors”) represented a small share of the market bringing investment advice and products to consumers. It represented such a small share, that the media hardly noticed its rise. But in 2015, several major firms either bought, built or partnered to develop digital advice solutions for their retail clients.

Predicting the future is hard. As one futurist noted: “there is no data for the future.”

Schwab launched Intelligent Portfolios in March of that year, Vanguard launched Personal Advisor Services, and Northwestern Mutual purchased LearnVest, then a smaller digital advice platform. The adoption of this technology by major firms signaled that this model represented the future, and these firms felt confident placing big bets on digital advice. It was one of those moments where it seemed that the history of financial services had split, and now we would define the world as “before” and “after.”

As CFP Board examined the marketplace, our senior leadership team asked several key questions: What does this mean for human advice? How will this impact and shape the delivery of financial planning online and in-person? How should CFP Board be thinking about the skill sets financial planners will need in the future?

One of the biggest unknowns: how algorithms would automate many of the functions financial planners might currently perform? We already started to see how the investment advice typically provided by an advisor had become automated and that customers were getting their portfolios managed without direct human oversight. Could these algorithms someday automate all financial planning activities? As the uncertainty about the industry’s future increased, CFP Board needed a way to determine how we should adapt to this new reality and identify the opportunities going forward.

Scenario Planning Approach

To tackle this new future, the senior leadership team decided to engage in scenario planning which enables an organization to “develop flexible, long-term plans that can succeed regardless of how the future unfolds.” ¹  In this way, CFP Board would not be placing a bet on a single outcome in the future, but rather “stretch” our thinking and widen the realm of possibilities.

Industry executives, researchers and digital advice providers gathered for a series of meetings which included debates, breakout sessions, presentations and polling. The findings were integrated and synthesized to develop four scenarios of possible futures for Digital Advice. That report was issued in December 2016 and can be found here.

An Exercise in Forecasting the Future (or Multiple Futures)

Our team developed four distinct scenarios which served as narratives of what a particular future might mean for the profession and CFP Board.

“Everyone Goes Digital” contemplated a future where automation and digital tools are easy to use and trusted by most consumers. However, in this scenario, regulatory barriers have prevented holistically integrated advice across all disciplines (tax, estate planning, investments, etc.). In this future, consumers engage with several providers to meet their broad set of financial needs. Prices for advice are lowered, which causes a modest increase in the numbers of consumers receiving advice.

“Rise of the Humans” forecasted a reality where human advisors play a huge role in the client experience. While digital tools generate the advice, the complexity of financial products and services require a human advisor for interpretation, delivery and implementation of the plan. Advice is still fragmented, so consumers seek out services from several providers. Under this scenario, consumers perceive more security and personal touch with a local advisor relationship, which digital platforms have been unable to replicate. With much of the planning process automated, advisors spend more time on the behavioral side, coaching clients through their financial decisions.

In the “Back to the Future” scenario, financial advice has become a one-stop shopping experience. Clients are served by a single advisor who serves all or most of their financial needs. In this future, consumers are not completely comfortable with a purely digital approach and rely on human advisors as the primary users of the digital tools and platforms. New advances in machine learning have allowed advisors to handle most financial situations, with technology both aggregating the data and generating the recommendations. To scale their practice, advisors use videoconferencing tools and virtual (rather than in-person) meetings. Critically, the human advisor has not been replaced and remains essential for the interpretation and delivery of the financial advice. For clients who do not meet minimums, they are efficiently served by call centers, where advisors deliver the level of advice needed for less complex client situations.

The most provocative scenario, and one that garnered a lot of buzz from the press at the time, was “Judgment Day.” It envisioned a future where consumers are very comfortable with digital advice and demand a holistic approach. Because of the on-demand nature of digital (i.e., Netflix, Amazon, Uber etc.) they want self-led platforms that cover all areas of their financial life. In this scenario, some of the obstacles such as regulation silos and consumer comfort with digital have been overcome. In this future, human advisors are only used for the most complex, high touch situations where technology may fall short. Human advisors are bifurcated between behavioral coaches at staff call centers and specialist advisors with expertise in areas not served by the digital platforms.

Which Scenario Came True?

Our scenario planning exercise was not intended to pick a winner, and we can see elements in each scenario that are happening today. For example, we may not be living in the “Judgment Day” scenario where AI has taken over a lot of the financial planning process, but we are seeing large firms incorporate AI today to help keep their advisors informed of client situations that represent areas of need and opportunity.

The human advisor still drives the relationship with the client, but is empowered by digital tools that help engage clients more in the planning process and allow them real-time access to their financial picture.

What we have yet to see are digital platforms replacing human advisors as their primary source for delivery of financial advice. Technology members of the group taught us that computers are not good at recognizing human emotions (yet), and are not ideal for client acquisition, handling complex planning situations or developing trusting, long term relationships. Clearly, we landed somewhere between the “Rise of the Humans” and “Back to the Future” scenarios, although the emergence of virtual advice centers, which is a reality today, was predicted in the Judgment Day scenario as well.

The human advisor still drives the relationship with the client, but is empowered by digital tools that help engage clients more in the planning process and allow them real-time access to their financial picture. There also seems to be a strong pull in the direction of the “Back to the Future” scenario, where more holistic advice is available for the client. Interestingly, the pandemic — which was not part of the scenarios — has accelerated the use of digital tools and videoconferencing that the “Back to the Future” scenario envisioned.

Lessons Learned

One of the big takeaways for CFP Board was that the digital revolution would automate more and more activities over time that the human advisor previously provided. If data gathering, plan development, monitoring and other tasks are streamlined through digital tools that gather data, analyze and develop plans and reports instantly, then there would be an increase in capacity for advisors over time. The question became “How will the daily activities of the advisor change?” and “What should replace those activities?”

The answer represented both an opportunity and a challenge for CFP Board. All signs pointed to a future where the human advisor must adapt and move towards activities that computers could not replicate. Where would the advisor add value? Counseling and coaching clients, with the goal of changing behaviors seemed like an obvious choice.

All signs pointed to a future where the human advisor must adapt and move towards activities that computers could not replicate.

Advisors have known for some time that changing behavior produces better outcomes. Financial planning, at its core, is all about encouraging clients to start doing things (e.g. saving more), stop doing other things (e.g. spending too much) and thinking differently about things (e.g. caring about your future self and your legacy). Over their careers, advisors develop strategies to coach clients to make better decisions and understand the long-term impact of inaction or wrong decisions. These skills, though, should not be learned solely by experience over decades, but should be part of a financial planner’s training before they enter the profession.

In 2020, CFP Board’s periodic Job Task Analysis confirmed that this skill was critical for financial planners. As a result, the CFP Board education, exam and CE will be integrating more of what we refer to as the “Psychology of Financial Planning.” In addition, in 2022, CFP Board will be developing a body of knowledge around this area, including a book and other materials to help advisors incorporate these skills into their financial planning process.

In all of the scenarios, technology played an increasingly relevant role with financial planning and is now allowing firms to scale advice and offer it to more customers, who previously were not able to access financial planning advice. This result has been an explosion in retail advice and retail direct channels that provide financial planning services to mass market and mass affluent clients. CFP Board has been working with firms that are providing digital advice through virtual call centers to encourage that they hire CFP® professionals to service this growing segment of their client base. Today, we are happy to report, that all of the major firms in the digital space have incorporated the CFP® certification for their virtual advice offerings.

What lessons can firms learn from this approach? We know that the financial advice market changes rapidly as demographic, social, technological and political changes impact our economy and the broader financial services industry. In this environment, making accurate predictions is hard if not impossible. Scenario planning helped our team understand and prepare for a future that at the time was very uncertain. By recruiting the best thinkers and leaders in the digital space, CFP Board prepared itself for many possible future outcomes. As a result, we are better able to continue our mission and embrace the future of financial planning.

1. The Future of Digital Financial Advice, CFP Board, p. 5.

Interested in discussing how CFP Board can support your firm’s certification efforts? Contact CorporateRelations@cfpboard.org.