Kristie Edling-Day: How Advisors Can Harness the Power of Technology

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Hello and welcome to Barron's The Way Forward. I'm Greg Bartolis, and my guest today is Kristi Edling Day, Executive Vice President and CIO of Advisor Experience at LPL Financial, a leading wealth management firm, top custodian, and Fortune 500 company. At LPL, Kristi is responsible for all aspects of the digital and service experience for LPL's flagship platform, ClientWorks, which supports LPL's 21,000 advisors 500 RIAs, and 1,000 institutions across the country. She's been in the financial services industry for over 17 years, focused primarily on developing business strategy and leading technology transformation. Prior to joining LPL, Kristi was CIO for Vanguard's financial advisor and institutional investor businesses, and her passion and knowledge of the tech space landed her on this year's list of top 100 women in fintech by FinTech Magazine. Today, she will address why technology will not replace advisors anytime soon. Welcome to the program.

Thanks, Greg. Great to be here.

Tell me, first of all, about joining LPL. You haven't been there too long, and about your optimism about advisors despite the onslaught of technological change and upheaval that we're seeing right now with ChatGPT, AI, etc.

Sure. So, you know, you're right. I joined LPL relatively recently, and part of it was excitement about the growth in the need for technology to serve advisors. In my time at Vanguard, I was very fascinated by how technology could actually help advisors do their jobs better. And when the opportunity came along at LPL to do what I do there, which is actually owning their key client works platform, it was a great opportunity to realize some of that passion. You know, kind of on your question about, you know, why I have so much optimism. I spent some time thinking about the history of this business. And, you know, I went back in time and I thought, and I'll call this one Case Study 1. As first, you know, in the early '80s, portfolio accounting technology was introduced. That replaced something that advisors were doing. A lot of it was calculators and very much by hand and, you know, written papers and typewriters. And over the course of the next 2 decades, really, you went from portfolio accounting and you added one piece of tech after the other to kind of, you know, in the early '90s into the 2000s, you had full, fledged portfolio management technology. It would've been easy as an advisor then to feel like, hey, I'm being commoditized. I was a stockbroker or a stock picker. Now this core part of my job also replaced by technology. And yet if you look back in time, in my opinion, and I think in, if you look at the alpha delivered over the time since then, advisors, have been able to deliver much more value outside of those commoditized portions of what they do every day. You know, I think then I, we'll call this case study 2, in the early 2010s when robo was introduced. And I remember the buzz about, hey, are algorithms going to replace advisors? I was actually in tech by that point and probably, you know, and as an engineer caught up in some of the hype. If you fast forward to where we are today, I think, you know, I wouldn't be out of place to say it's just a tool that has found its proper place with advisors. You know, I'll quote a stat on that from my former employer Vanguard that I think really takes that point home. It says 90% of people using a human advisor would not switch to a digital solution. On the other hand, 88% of those using a digital solution would consider switching to a human advisor. So as much as there had been the fear, if you look at where we are today, for many firms that do offer a robo solution, it's just a small part of overall how they serve advisors. And so when you fast forward to looking at what's going on today, I think it's going to very much be a similar story.

Okay. That, yeah, I guess that's what history suggests. Now let me ask you, what about for people who might argue that the nature of this technology, the generative AI, is different because it's not something fixed and in fact can become smarter and more powerful? Even acknowledging that, do you still think that that can be harnessed more for good to free up time and energy for other things, which has historically happened with robo, et cetera?

So, you know, Greg, I think what I wouldn't want anybody to walk away from this conversation and think that I'm discounting the power of the tool, because I'm absolutely not. I mean, it did in 5 days what it took Facebook 10 months to do. And we look, prior to this, we look back at Facebook and thought that was unprecedented.

You mean in terms of number of people?

In terms of adoption. Yeah, product adoption. That like truly a stunning, product adoption curve. So it's not that it's different from, you know, traditional AI or discriminative AI. It is truly a different form of artificial intelligence. But I think if you look back at the history of the industry to date, advisors have consistently been a creative and very resilient bunch, and they have really unique value to add. And I think, you know, maybe we'll get into that next. So my position is that it is going to be a powerful tool in the arsenal role of advisors to add alpha, just as robos freed them up, just as portfolio management freed them up. And, you know, myself, part of my job and LPL as a whole is committed to being part of the community that's really helping to define how AI is going to be able to help advisors continue to build their perfect practice. And we believe that this technology is going to be an asset to advisors in driving that mission.

Okay. And I read a bit of about what you wrote about, and you talk about the importance of advisors focusing on where they are irreplaceable. And I guess that could be a silver lining of this, right? It'll almost out of necessity force them to say, okay, what do clients really, really want from me, right? Speak to that a little bit.

A lot of research has been done trying to quantify the value of advisors. And, you know, I'm sure that our listeners can think about specific examples of the outsized impact they've had in their own book. As much as all of us would like to think that we are completely rational human beings, we are specifically not rational as it relates to money. So behavioral economics is a subfield unto itself for a reason. And advisors are increasingly behavioral coaches that are holding us accountable. You know, another great statistic that, that I have anchored back to as I've been thinking through this question is that 3 times as many advisors report having strong peace of mind when working with a human advisor compared to going it alone. And you ask yourself, well, why would that be? And so much of it is the value of the trusted relationship. I want to unpack AI and ChatGPT for just a minute. So right now you could go into ChatGPT and, you know, kind of plug in as an example, like build me financial advice for this specific scenario, literally in the style of Schwab or Vanguard or Fidelity. It can do that today. So let's say you did that and you took what it spit out because it would spit out an answer in front of a, you know, to give it, gave it to one of your clients. Even if they know you, the relationship is there, the chances are they don't implement it. Why? Because the relationship, the trust, it came from an artificial intelligence. And even though they see you face to face, they want to know that it came from you.

Right. And basically any other firm could do the same thing. So in a way, it's a level playing field on that count also, right? There's no extra value add. You're going to get the same thing.

Exactly. I mean, and what I like to reflect back on is that it's like, forget ChatGPT, for example. There are financial firms today who will offer free, like a free one-time financial plan where humans can call in, talk to a human. The vast majority of those clients that receive a plan don't implement it. Why? Because the advisor is actually the one that's there that holds them accountable. And in that one-time transaction, It's just not having the impact. And so I don't see actually that much difference in human behavior between the two.

Right, it has to be more sustained and meaningful, yeah. Tell me what else advisors should do or know or even prepare around this. What do you recommend?

At the end of the day, what we want to remember, like with a lot of these technologies, you know, and AI-fueled technologies, is that right now it's just that artificial. Intelligence. And where a lot of us are starting to see the value of artificial intelligence in our lives, I think it very much remains to be seen whether we are going to have space for artificial empathy. I think we are a long way from that. And in a world where so much of the value of what we get from financial advisors is that person that knows me and knows my situation and says, hey, I know this is challenging, but we've got this. I think that's a critical thing for advisors to keep in mind. You know, and there's 3 areas that I would really dig into and encourage advisors to think about as it relates to kind of this whole, the human value of advice. The first is that your clients need to borrow your courage and conviction to help them stay the course and be disciplined. Unfortunately, you'll never see the, you know, keeping your flighty client in the market during market turbulence on a statement. But think back to 2020. And if you look at what the market has done since that dip, an advisor has paid for a lifetime of his fees.

I'm forgetting who said it, but the reality is that most money is made during bear markets for the people who could just stay in, keep investing, and not sell at the bottom. That's such a key point. Yeah.

That's easy to forget for those of us who are in the financial services industry who eat and breathe this stuff, that for our clients, this is just a small part of their day job. And so being able to borrow the faith and conviction that an advisor has is critical. You know, I was reading an article over the weekend and a line out of it really stuck with me. It compared the technology underlying ChatGPT to more like an abacus than a mind. Right now. Empathy from an abacus, we're a long way from here.

Well, yeah, and even in terms of expressing empathy, oftentimes people will say the right things but not say them in the right way. It might feel hollow, it might feel insincere, disingenuous. That's a pretty high hurdle that even humans struggle to clear.

Where humans are willing to give grace when they have a relationship already with somebody, even if it didn't, the tone wasn't quite right, but they know the person, there's none of that. First, if there's not a relationship there, and second, for sure, if it's an AI underneath.

And you know what I wonder more broadly, if ChatGPT, let's say it really starts to accelerate, let's say people feel some increasing dislocation and anxiety, I wonder— if it's possible that the pendulum might almost swing towards an active aversion towards it, and people will even more actively seek out the human element. I mean, it may have unintended behavioral consequences. Hard to say. I mean, we really don't know how it's going to play out, but interesting to ponder.

Well, I mean, there's some push for legislation right now where it would require an AI to disclose that it is an AI in advance of engaging in a conversation. And just imagine kind of that, like, which I don't think is a terrible idea, by the way, but imagine that upfront reminder just really underscores what you said, the sense that it's an artificial engagement. So, you know, the next thing that I would say for advisors that where there's true human value to be added is with needs and goal discovery. So, you know, all of us have been in those amazing conversations where just the conversation we walked away with our minds expanded. And, you know, as it relates to ideation about aspirations and what's possible and what do you want from your life, how do you prioritize goals and trade-offs? I mean, we know that it is seldom that a client can achieve every one of their financial goals. And so then, you know, you're trading off between those. Imagine a couple that is realizing in that moment, this incredibly human moment, that they can't both pay for their retirement and have their children go to college. For an advisor in that moment of truth, it's helping them understand they're not being selfish and you should be proud of what you are able to do for your children. And like the power of a conversation like that relative to, you know, an AI telling you, don't worry, it's okay that you can't pay for your child's entire education. I'll leave it to you to determine like, you know, how receptive a client would be to that.

And ideally, an advisor could also read body language, facial expression, intonation, right? You can pick up on other cues as well and maybe go, let me follow up on this. Are you sure? Right? So there's a lot more information that you'll be picking up face-to-face too.

Absolutely. And then the last one, I think, is a really powerful one. And this is that your clients need help in accommodating their beliefs and navigating their preferences. AI is really good, and technology is really good at the black and white. But we all know humans are messy and there are shades of gray. And, you know, sometimes things don't have a clear right or wrong. Sometimes, again, going back to the point earlier, we aren't fully rational. And so having an advisor helping navigate some of those decisions where You know, hey, what are your beliefs about tax rates? That will determine kind of a decision around traditional or Roth investment. You know, a tricky one as I was brainstorming around life expectancy. Do you want to, this, you know, AI, which, you know, question about lifespan, it kind of eternal being like talking to you about life expectancy. Is the market overpriced? Well, that may or may not be true, but getting into the market a human advisor will say, well, we'll dollar cost average you in, like we'll manage it. I find it very interesting that if you look at how ChatGPT is performing on standardized tests, which is testing on standardized tests these days, it's acing the ones that are knowledge-based. But I find it very interesting and compelling for this conversation here to see that like tests like AP English Literature, inherently human, messy, abstract, the ones where you have to use judgment, it's failing miserably at. And that's where the true expertise of an advisor, you know, I don't even need to talk about the hallucination topic with an advisor to come in both to help navigate the beliefs and preferences, but also then be able to look at kind of what ChatGPT would come up with and say, this, this is out of line and here's why. So, you know, with all of that said, if you as an advisor are spending your time in that space where you are truly irreplaceable, kind of helping navigate some of the messiness of, of what it is to be a human, you are not threatened by tech or AI. And in fact, um, tech can help you maximize the time that you have to add value, which kind of brings me to my next point, which is to really be ruthless about all of the other activities where you aren't driving that area, those areas where you're irreplaceable, and understand what your options are. Because, you know, the really good news, hopefully it was reassuring that the previous, you know, kind of set of points was reassuring. But on the flip side, the stuff that you're really good at, kind of as we said technology is really bad at, the stuff that we tend to not be as good at, either because we're slow doing a lot of computations or error-prone, whether it's detailed modeling or remembering to complete compliance tasks. Technology is really good at the stuff that we tend not to be great at. Thinking about technology as a form of low-cost delegation and taking advantage of what it's really good at is an important next step for advisors to think about how to navigate, you know, this world of technology. So I want to go on two examples that I think, you know, are compelling. The first is around client onboarding. Some research has actually shown that investors too would prefer an automated set of input tools as opposed to kind of lengthy back and forth or where an advisor has the potential to fat finger data entry, and you think about— and that is a time-consuming part of the plan, and you might argue, well, but I use that time to build relationships. Invest the time, but—

Yeah, I mean, I spoke with someone recently who said a good example of that is when you go to a doctor's office for the first time and you have to— do I have, you know, emphysema? Do you have this? Do you have diabetes? It's a lot of nos and whatnot, but if you did that by speech, you would be there for an eternity, right? So there can be a benefit early in the intake of information.

Yeah, and I love that example because if your doctor is going to spend the time with you to have that chat, you probably don't want to be going through a checklist of— you'd much rather be getting to know the doctor on a personal basis and vice versa. And that's really what the value proposition here could be, whether it's time spent with that new client or prospecting or consolidating assets somewhere else. There are much more value— valuable places to spend the time. The second I would say is on annual updates. So as I've been coming up to speed in my new role, one of the things that I've heard consistently from advisors is that at the end of the first year, so there's a tremendous amount of work at the beginning of a relationship to get that plan in place, but at the end of the first year, And going into, to the out years, it can feel challenging to continue to have the sense of value-added conversations to continue building that relationship. Imagine turning the annual updates, and some of those are compliance-driven, to an AI assistant that can help you mine the moments that matter. So if you're going to reach out to that client and connect with them, you've got powerful things to talk about where you're building relationships and potentially, like I said, over time consolidating assets or something technology could be great at that and take a lot of the roteness out of that today. So I would say, you know, taking the first two, this is sort of an obvious combination of the first two, but I think it's an important point to make that understanding where you're irreplaceable and then understanding where technology can be really good, if you put those two together, far from this fear of, technology taking over or being a zero-sum game where it's me or the technology. I truly believe, and I think history has already borne this out and it will again, that the effective combination of the human and technology together can grow the pie, and not just for the advisor as an individual, but for their investors as well. You know, a couple of examples where I would highlight to say, where technology and the human works hand in hand to the benefit of everybody. You know, we've already talked about how growing relationships is inherently human. Those relationships over time can lead to asset consolidation. What we do know is that robos haven't yet proven they can do that with any measure of success. And then as you think, as the relationship extends over time, to drawdown strategies, wealth and estate planning, intergenerational wealth transfer, the, the elegance of an advisor building those relationships with a family over time and building that trust not just with the parents, but the children growing up and seeing the parents having this trusted relationship facilitating something that a lot of advisors are concerned about. The We are a long way from technology having the sophistication to kind of be able to facilitate something like that. However, they are really terrific, technology is really terrific at the actual implementation of those conversations, whether, you know, it's around asset consolidation or drawdown or whatever, like actually implementing what's being discussed. That's the beauty of what technology is really good at. Second hand-in-hand kind of example, I'll start with a reverse example where, you know, maybe you've got tech playing the lead role doing tax loss harvesting. It can be, or it is very tedious, very time-consuming to do all of that training by hand, and tech is ideally suited for it. As an advisor, being able to have that conversation with the client and reassuring them, yes, this does in fact make sense. I know that behavioral all of our cognitive biases are saying, I'm selling at a loss and now I'm buying back in. Are you really sure it's a good idea? Being that human on the other side saying, yes, I've done this before and I have confidence. So we'll let the technology actually do the implementation, but they're there as the coach reassuring them that it's the right thing to do. So again, another example where not as powerful either one by themselves as the two of them are together.

Right, right. The technology is doing the action, but the advisor giving the framing and the context and the approval frankly saying, yes, this makes sense. Yeah.

Yeah. And in both, not to overemphasize the point, but it's not just about the advisor in this case. And that's why I get really excited about this topic because the advisor isn't being selfish in a strategy like this. The end investor is really benefiting from that as well. Like in the first example, you're keeping that flighty client invested in the market and the year's worth of gains they have as a result of staying or with tax loss harvesting and reassuring and being that coach to provide the reassurance that's the right thing to do. With the market volatility we saw in 2022, like some research showed that that could have saved clients 95 basis points. So doing the right thing with tech and the human together is really a net benefit to everyone.

Okay. And before we wrap up, I want to ask for, piece of actionable advice, something people can act on or keep front of mind, top of mind in terms of how they can harness technology and not see it so much as a threat as many think it is?

As I was doing research on this podcast, I came across a quote and I just was excited. It's from 2005 and it's from Colin Coombs who was part of the inaugural class of certified CFPs. He later became the governor of the CFP Board. But again, 2005. And I think for us, the actionable advice is to not forget it, to hold on to it, and start to consider it as a bit of timeless wisdom. She said, "What investors want most is a trusted relationship with an individual, not a website or a big presence on the television screen. If they can find that trusted relationship, they hold on to that tightly. The clients we've lost over the years," are those that we accepted without having done a financial plan. They just hired us to be asset managers. We don't lose the clients that we have this trusted relationship with. We spend 90% of our time focusing on minutia, asset management and taxes, which obviously we've got to know something about. But the thing our clients are looking for is that trusted relationship. And so, you know, 2005 to now, exact same sentiment is true. And I think as long as we keep that focus on the trusted relationship and technology is another tool in our tool belt, we've got nothing to worry about.

Well, that's excellent advice to keep in mind. Thank you for sharing that.

Thanks a lot for the time with you, Greg.

It's great. Absolutely. My guest has been Christy Eddling Day. For more advisor-specific podcasts, please check out barons.com/podcast. For The Way Forward, I'm Greg Bartalis.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.