The financial press was constantly discussing robots ten years ago. The quieter kind—lines of code sitting on a server somewhere in New Jersey, ready to manage your retirement funds for a fraction of what a human would charge—rather than the metal-armed kind on a Toyota assembly line. A fourth industrial revolution was predicted by Bank of America Merrill Lynch. KPMG was discussing figures such as $2.2 trillion. Conferences were lively. The covers of magazines shone. It appeared that the future had already been factored in.
Everyone sounded so confident that it’s worth pausing. Every analyst was talking about Betterment and Wealthfront, and it was almost universally assumed that people would stop contacting their advisors, use an app, respond to six questions about risk tolerance, and then watch as an algorithm compounded their savings while they slept. It was said that the certified financial planner, with his beige office and shelf of worn-out retirement manuals, was leaving. That is not the case. Not even near.
Depending on whose calculations you trusted, the robo-advisory sector managed between $350 billion and $660 billion globally by the middle of 2019. This is a respectable amount, but it is far from the trillions analysts had predicted. In the meantime, over $9 trillion in US currency remained in money markets and checking accounts, earning virtually nothing and being disregarded by both humans and algorithms. Strangely, the same fear that drove people to automated investing after 2008 also prevented many of them from making any investments at all.
Recently, financial analyst Josh Brown wrote something that really resonated with me. He declared that the war was over and that the human advisors had prevailed, but not with a spectacular victory or even a real battle, but rather with the subtle inevitability of a tale that no one was interested in. There are currently about 300,000 financial advisors employed in the US, and many of them claim that there is a real lack of competent colleagues. He used the word “renaissance.” not going extinct.
The contradiction is evident when you walk into a midsize advisory firm in any American suburb. Clients are greeted by name by the receptionist. Coffee is available. A planner is examining a 60-year-old’s 401(k) rollover somewhere in the back on a screen driven by the same type of allocation engine that the robots invented. In a way, the technology prevailed. The very people it was meant to replace simply absorbed it into their workflow. Betterment recognized this early on and changed its focus from competing with advisors to serving them. Instead, Wealthfront focused on cash management, which proved successful when interest rates were high but appears uncertain now that they are declining.
However, there’s a feeling that something else is loading in the background. Today’s AI discourse sounds nothing like the robo-advice discourse of 2015. It sounds stranger and larger. Earlier this year, Anthropic’s Dario Amodei issued a warning about the potential for artificial intelligence to increase unemployment by ten to twenty percent. According to McKinsey, if banks don’t adjust, AI financial agents could reduce global banking profits by almost nine percent. These are not predictions about asset allocation. They are forecasts of what or who will make any decisions.
Nobody is entirely certain if this second wave will materialize or if it will join NFTs and 3D-printing stocks in the graveyard of overheated forecasts. Replacing people was the intended goal of the first revolution. The subject of the next one may be more difficult to identify. It’s difficult not to wonder if anyone will anticipate it this time.
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