AI About to Revolutionize Advisory Services
Morgan Stanley announces tech that’ll save advisors 15 hours a week
Ric Edelman: It's Wednesday, June 12th. Well, I just got back from Palm Beach. I was there all day yesterday where I gave the keynote address for the FTSE Russell Global Wealth Management Conference. FTSE Russell is, well, FTSE is to London what the S&P is to here in the US, and FTSE Russell is now owned by the LSEG, the London Stock Exchange Group. And it was my second time that I spoke at an LSEG conference, I did last fall as well.
This particular event was attended by about a hundred or so of the largest pension plans, public pension plans that is, in the country. And they were all there to figure out how they ought to be managing their money in today's economic environment, and what's coming in the future and so on.
And that's why I was invited to keynote to talk about the future based on my book, The Truth About Your Future, which of course is the name of this podcast, The Truth About Your Future. And the focus of my conversation with everybody therefore was longevity. There's no question that America's pension plans are failing to acknowledge the incredible changes in longevity that are occurring due to advances in medical science.
The entire premise of my book, The Truth About Your Future, is longevity. In 1900, life expectancy in the US was 47. Today life expectancy is about 85. By the time you are 85, you're going to live to age 100 or beyond because of incredible advances in nanotech, biotech, bioinformatics, neuroscience, and of course, AI and robotics.
Why do I mention robotics? Well, because DaVinci is a robot that performs about 2 million surgeries a year. We need to recognize that the actuarial data that many pension plans are relying on to guesstimate how long are my pensioners going to live? How many years am I going to have to pay them retirement benefits? Their numbers are all outdated, outmoded, obsolete. Most pension plans are presuming that their pensioners are going to live into their 80s. What happens if they suddenly start living into their hundreds? Well, those pension plans be able to pay benefits to as many people for as many years as they're going to have to pay relative to what their projections are showing based on the amount of money they have that they receive in contributions annually from workers paying into the pension, and based on the rates of return that they're earning on their investments... are they going to have enough money to pay out so much money to so many people for so many years? And you couple that with the birth dearth that's going on, which I talk about often with you here on this podcast, the fact that we're producing too few babies in America, that means we're having a reduction in the number of workers, a reduction in the number of people paying into the system while you're paying more out than ever. This was the focus of my conversation with the pension executives and my admonition that they need to re-jigger, not only their actuarial assumptions, but also they need to readjust their portfolio modeling. They need to rethink the glide path going from a 60/40 portfolio that declines in equity exposure as you age, the traditional way people manage money, to having more inequities for longer. People in their 60s and 70s and 80s ought to have a far higher allocation to equities than they do. And they also ought to have a higher allocation for longer, and most importantly, a bigger allocation to exponential technologies and alternatives.
Well, I've just given you in about two or three minutes there, the entire thrust of my nearly hour-long conversation with everybody. Very well received. It was a terrific event, LSEG and FTSE Russell are terrific company. And it was really an honor to be the keynote down in Palm Beach yesterday.
What I want to talk with you today is Morgan Stanley's announcement that just came out yesterday. Morgan Stanley has announced that they are introducing an AI app for their financial advisors, and they say that this app is going to save their financial advisors 15 hours a week in workload. What's it going to do? It's going to provide transcripts of conversations the advisors have with their clients. So I'm not sure if you're aware of this as a consumer, or an investor, I'm sure you're working with a financial advisor. Two thirds of investors in this country do work with an advisor. I'm not sure you realize what the obligations are of the advisor. And I don't just mean obligation to helping them do a good job for you, but they're regulatory obligations, not only required by their firms, but by FINRA and the SEC. Financial advisors are required to maintain detailed records of all of their client communications. That doesn't just mean advertising, but it also means all communication – any meeting, any email, any phone call, any letter – have to be documented, recorded, for auditors, investigators, SEC examiners, FINRA staff to come in and verify that the work the advisor's doing is regulatorily compliant.
So advisors, we spend an awful lot of time complying with these rules. And here's what it comes down to. You've probably noticed that when you meet with an advisor, they're taking copious notes. You may not realize is that following the meeting, the advisor is taking their notes and transcribing them into a software that is called CRM, client relationship management software. Every financial advisor in the country uses software of this sort. There are several dozen companies that provide this software. Every advisory firm uses one or another of these pieces of software. Just like you probably use tax software to help you in preparing your tax returns. Or if you don't, your accountant certainly does. Lots of vendors in this space, CRM is big business in the advisory world.
I was one of the first financial advisors way back in 1988 to use an early version of CRM software. I was named way back in the eighties, one of the most, one of the, I think 12 advisors, one of the most advanced using computer technology. That was when computers were still pretty new and CRM has been an important role in our practice and, and rightly so. So we transcribe our handwritten notes into the software. You know, in this software, every client has a record. In the record, you enter notes, they're maintained chronologically, and these notes have to be comprehensive. They have to be able to demonstrate to the firm what we talked about, what I said, what the client said. It's a tickler reminder as well of what did I promise the client I was going to do next? Or what is the outstanding work? What documents do I need to send them? What paperwork am I expecting from the client? And so on. And there's a calendaring function that can trigger reminders to me so that I can say, Hey, in three months, remind me to call the client to book an appointment or to follow up with their attorney for something or what have you. So CRM is really, really important.
What Morgan Stanley is now saying is that this app is going to record the conversations that the advisors have with the clients, provide that transcription automatically, enter the transcripts into the CRM... eliminating the need for the advisor to do all of that work. I mean, advisors are typically spending 10 or 15 minutes, maybe a half hour following each meeting to do all of that work. This will now be done for them automatically. This explains why, if you've ever had a therapist or psychologist or psychiatrist, you've gone to why those hour-long sessions are only 50 minutes. It's because they need the extra 10 minutes to transcribe their notes into their record system. Well, this is now Morgan Stanley saying advisors aren't gonna need those 10 or 15 minutes or a half hour. It's gonna be done for them automatically by this AI.
Not only is the AI going to record the conversations and transcribe the notes automatically into the CRM, it's going to summarize key points of the conversation. I mean, if we're having an hour or two hour long meeting, which is pretty common with clients... what was really said that really, really matters in that meeting? What are the follow-ups? What are the to-do bullet lists that I need to deal with or that my client will need to deal with? This AI will summarize the key points of the conversations, meaning it's smart enough to know what the key points are.
And then it will write an email for the advisor to send to the client, so the advisor can say to the client... great seeing you, here's a summary of the key points of our conversation. So the client can have a set of notes as well. The AI will also allow advisors to create proposals, rebalance the portfolio for the client, move money, and create performance reports. It'll do all of this automatically. The advisor will simply say to the AI, do one of those things. Hey, rebalance the portfolio, or create a performance report. The AI will do it. It'll do it for the advisor automatically and immediately, eliminating the need for the advisor to do that work. The productivity benefits of this to the advisor are massive, which is why the CEO of Morgan Stanley said yesterday, this is going to save the advisors of Morgan Stanley 15 hours a week. When you consider that we're talking about a 40 or 50 hour work week, this is massive. This is going to, in other words, allow advisors to serve far more clients than ever, allowing them to manage more money than ever, generate more revenue than ever, and make more money than ever for both themselves and the firm.
This a pretty big deal. And I don't really mean to be highlighting Morgan Stanley here, although this was their announcement yesterday. My point is Morgan Stanley ain't alone. You can bet that every financial advisory and wealth management firm is engaged in similar research and development. And there are dozens, probably hundreds of software companies in the financial advisory space that are busy building these types of programs that they're going to sell to advisory firms. So although Morgan Stanley, one of the biggest brokerage firms in the country can afford to build this in house, most firms don't have the resources to build it. They don't have the IT staff. They don't have the tech staff. They don't have the money to do it. They're not going to have to. They're simply going to buy it from a software company that provides it to them. Just like I didn't build a spreadsheet. I bought it from Microsoft called Excel.
So every financial advisory firm will soon be using this technology. Dramatic productivity benefits and increases for firms everywhere. There is a flip side if you haven't already begun to figure that out. This means that the advisor is going to be recording all of your conversations, whether they're in person over zoom or on the phone. You as an investor need to realize everything you say will be documented and recorded by the firm you're working with. This is a privacy issue. Now you shouldn't have a problem with this. Your financial advisor is like your doctor, lawyer, and accountant. With the exception that there's no privilege, you know, things you say to your lawyer, things you say to your doctor are covered legally by privilege. Nothing you say to them can be shared, even with a court order. But that's not true with financial advisors. If there's a court order, financial advisors can be compelled to reveal whatever it is you happen to say to them. In fact, I remember... it was a fascinating conversation, I was at an event in DC many, many years ago on Capitol Hill. And I was introduced to a US Senator. I'm not going to mention his name. He's no longer in the Senate, he's long retired. But I was introduced to this gentleman and I was even at the time a pretty well-known financial advisor, and this senator started asking me the kinds of questions people ask me when they are contemplating hiring me. So he wasn't just engaged in social chit chat. He was, you know, asking some pretty thoughtful questions about my role in the services I provide and how I work and things like that. And then he said to me, are our conversations confidential? And I said, yes, Senator, of course they are. Except if I get a subpoena and he said, what do you mean? I said, well, in the financial advisory world, our conversations are not privileged, which means under subpoena, I can be forced to disclose the nature of conversations and all records associated with the client. And he said, thanks anyway. And he walked away. That gave me a little bit of a pause. What is it a Senator might be telling me that he might be fearful I would tell a judge? I mean, I can certainly understand he wouldn't want me to tell a reporter... but why would he be threatened by the fact that a subpoena could reveal information? Anyway, that was then that was politics. I'm sure that it's much better today.
Anyway, I digress. My point to you is this, you need to be aware as a consumer that your advisor is increasingly using technology that, while they are terrific productivity tools and will prove to be of tremendous value to you and the quality of services you receive... you do need to be aware of the nature of this information. You might want to consider, since your advisor is going to be recording conversations with you, that you record conversations with them, so that you have your own database and records of conversations, so that nobody could nefariously, for example, edit an audio call to make it seem like you say something that, in fact, you never really said. So, food for thought. Technology is a wonderful thing when it's used correctly and in the right hands.
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Ric Edelman: I’m glad you’re here with me on The Truth About Your Future. Ric Edelman here. If you like what you're hearing, be sure to follow and subscribe to the show, wherever you get your podcasts, Apple, Spotify, YouTube – and remember leave a review on Apple podcasts. I read them all! Never miss an episode of The Truth About Your Future. Follow and subscribe on your favorite podcast app.
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The Truth About Your Future (Ric’s book): https://www.amazon.com/Truth-About-Your-Future-Money/dp/1501163809
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