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Sharks in the Water: How Technology Threatens Your Portfolio

If you are a high net worth advisor or investor, technology is one of greatest threats to your bottom line over the next five years. For the HNW investor technology and social media is increasing the flow of information and can have a dizzying effect on the financial decisions the individual investor makes. The days of being able to process information to understand the impact of news on you and your financial goals appear to be waning. Instant information can lead to instant decision-making.

The high net worth advisor is faced with the triple threat of an endless flow of information, “robo-advisors” and online aggregate advisors that are using technology to influence and disrupt advisor relationships and the investment decision process. Many of these “new age” advisors have created slick user interfaces to lure in meticulous and cost conscious investors to their system. Once their information is loaded, these sites have a complete line of sight into everything financial.

The question to the user is “what are they doing with your information?” After all, most of these services are offered for free. Are they selling it to third parties for marketing purposes to generate revenue? Yes. Are they using your information to sell products directly to you? You bet. Are they using your personal information to win more of your wallet? Absolutely.

At some point, the individual investor must rethink a total loss of control of their personal financial information. You have worked your whole life to build your nest egg and now you are going give away your private financial information to anyone that is willing to pay for it and let it be used to influence critical financial decisions.

The quote below comes directly from one of these “new age” advisors in their explanation of how they make money.

“You won’t pay us a cent. Here’s how this minor miracle happens”

  • Our advice saves you money.
  • We found several funds that performed up to 3.6% better than your fund.
  • Your Brokerage charged you a low balance fee, here are others that won’t.
  • Your advisor charges more than 75% of other advisors, yet he didn’t beat the market.”

Allowing someone or something to second-guess all your investment decisions after the fact will keep anyone up at night. The question the individual investor has to ask himself is what happens in six months when the next highest bidder comes along and they find another fund that performs better than the one you switched to. Many of these systems are designed to entice investors to make quick, irrational decisions to favor the most recent bidder.

For those that think this technology won’t last, they should be aware of how fast this industry is growing. In just two years the number has grown from 5 to 37. While all will not make it, those that are most effective in marketing, not investing will survive and flourish.

Technology in finance is not going away. More specifically, account aggregation technology is here to stay and growing by the day. The question for the investor is do you have control of your information? Do you have a complete view of your wealth, not just the assets managed by one firm or individual? If the answer is no, it is only a matter of time before you make an irrational investment decision.

The ups and downs of the market over the past few years are enough to keep anyone up at night. Armchair quarterbacking your portfolio is easy money. It’s pretty easy to identify the winners and losers after the game has been played. But will the same team win next year? Financial advice is not about the past, but about the future.