How Technology Is Changing Financial Advice

While mobile banking and robo-advisors have been in place for some time, newer technologies are still reshaping the financial services landscape. But what impact will they have on the industry, and where will the financial world go next? 

Below, we discuss these changes with Dan Egan, managing director of behavioral finance and investing at Betterment, and Alexander Harmsen, founder of PortfolioPilot.com, an AI advising platform, taking you through the most significant tech changes in the industry before previewing what’s coming next.

Key Takeaways

• The use of artificial intelligence (AI), machine learning, and myriad app-based platforms are reshaping financial services.
• Newer technologies are making it easier for consumers to stay informed about their investments, which is reshaping their relationships with advisors.
• Changing demographics will affect how advisors engage with future clients and what advice they offer at key life stages.

The Evolution of Tech-Powered Financial Guidance

In recent years, financial service companies have greatly expanded their digital offerings, while broader technological trends have impacted the industry, including the uptake of generative artificial intelligence (AI) and machine learning. These changes are not just reshaping financial services but are also paving the way for new financial ecosystems.

Here are some of the technological trends widely discussed in the industry:

AI and Advanced Analytics

AI is going to be central to any story told about finance today. It has evolved from a promising technology to a significant part of how many receive financial advice. Moving beyond basic robo-advising and trading algorithms, today’s AI systems can deliver sophisticated, personalized guidance for all the different parts of an investor’s financial life.

“The beauty of being personalized like this is that investors can come in with whatever level of expertise or however sophisticated their portfolio is and the system adapts to that,” Harmsen told Investopedia.

The impact of AI extends beyond selecting investments to broader wealth and retirement planning. “It’s not just a chatGPT wrapper,” Harmsen said, describing how purpose-built financial AI differs from general-purpose models. These specialized systems can automate portfolio rebalancing, help clients with tax optimization, and lead them through risk assessments while identifying investment prospects aligned with their goals and trading personalities.

Super Apps and Integrated Platforms

Digital platforms have evolved from basic account access to financial command centers. Investors log into interactive dashboards with real-time analytics and scenario modeling—technology once the province of institutional investors. So-called “super apps” are consolidating banking, investing, retirement planning, and advisory services in one place.

But many investors don’t want to just hand over their financial lives to AI and other automated systems, preferring hybrid approaches. “We find that the vast majority of people actually want to be somewhat involved,” Harmsen said. An AI system can guide you on best practices and what specific investments might be best for you. “But then,” he said, “you still get to pull the trigger.”

Security and Compliance

Improving their cybersecurity has become a top priority for financial advisors, including encrypted communications and regular system audits.

Regulatory technology has similarly evolved to help advisors navigate complex compliance requirements while maintaining client privacy. RegTech can also help ensure that investors are protected and that the advice they receive follows the latest standards.

Note

While the advent of AI and robo-advisor services has struck fear in many financial advisors, the Bureau of Labor Statistics says that employment in the industry should grow by about 17% over the next decade.

Lower Costs and More Accessibility

Technological and other changes have meant that there has been an increasing shift from charging commissions for services to fee-based models for financial advisors. Fee-based advisors charge a percentage of the assets under management, a flat fee, or an hourly rate rather than earning commissions on products they sell.

As expensive legacy systems at the big firms give way to cloud-based platforms and automated processes, the cost savings are increasingly passed on to clients. The traditional 1% advisory fee model is under pressure from digital alternatives. Meanwhile, fund expense ratios and brokerage costs have come down significantly. “That trend has been going on for a long time, and consumers are going to continue to see it in terms of zero-cost brokerages, no trade commissions, and zero-cost investing,” Egan said.

The upshot, he noted, is that the reduced costs for clients are here to stay. This means advisors need to rethink their relationship with their clients. “That’s one of the things that can shape the marketplace because it shifts the balance of power toward the consumer,” Egan said.

The Advisor’s Evolving Role: More Human, Not Less

Despite an industry focus on AI and tech advances, Egan argued that the human advisor-client relationship will stay central even as costs come down.

“We’re starting to hit a point where people want self-defense mechanisms,” Egan says, emphasizing that control over data and user experience are far more salient now for investors. “I think we’re going to start seeing people saying, ‘I want to have more control because I value my attention more.’”

Egan likens the trend to consumers paying premium prices for personalized experiences on platforms like Netflix and Spotify. He points out that investor education and trust are crucial in consumer engagement with financial services. “The industry as a whole needs to move back to a place where it’s trusted and where clients know that you’re sitting on the same side of the table as them,” he said.

Egan also suggested that industry changes may not be as radical as many media accounts imply. “There are some nice but generally niche things that consumers can look forward to,” he said, noting that some consumer-focused technologies should improve privacy and security. “It’s great, and it makes you more secure,” he said about improved security protocols, “but it’s not a revolution. What’s going on is that there is a minor reshuffling of who sits where on the deck, but we’re all still on the same boat with the same underlying tech.”

The Demographic Changes Leading to Tech Shifts

While headlines often focus on AI and other new technologies, many financial industry experts caution against overestimating their immediate impact.

Nevertheless, demographic shifts are creating real pressure for technological adoption. The wealth management industry faces an advisor shortage despite growing demand, with advised relationships projected to increase 28% to 34% by 2034.

There are also dramatic demographic shifts among clients. Taking millennials as just one example, we can see how demography and technological change often evolve together. The millennial generation is typically defined by its fluency in technology and how their relationship with other products and services, like listening to music or watching movies, has affected how they think about their relationship with financial advisors and fintech. Researchers who study millennials and finance note some other important distinctions about the demographic:

• They often send money as part of their social networking, such as on Venmo.
• Millennials are moving money to more places faster. They have grown up with smartphones, giving them immediate access to credit and their accounts, no matter the time of day.
• To do so, they may invest earlier than previous cohorts, using AI and roboadvisors.
• Millennials bank without a bank. Many millennials may have never met a bank employee in person or seen them after the day they set up their accounts. Personal interactions for banking services are thus foreign to them as eight-track tapes were to Gen Xers.
• Many millennials have shown remarkable discipline in their investment habits, making steady contributions despite market fluctuations. Between 2019 and 2024, millennials’ net worth increased by about $12 trillion.

The Investopedia Affluent Millennials Survey also reveals that more (65%) of them report having more trust in financial advisors than Gen Xers (58%). While media portrayals might lead some to believe they are as likely to get investment ideas from random TikTok performers, millennials are often savvy in this area, with far fewer saying they would trust videos (27%) than advisors and other experts for financial advice.

Changing demographics are affecting how financial advisors engage with older clients as well. Egan noted that parents’ ages are far broader, with some planning financially for families in their 20s and others in their 40s and beyond. “One of the interesting demographic changes is that more people are having kids at a later age, but they’re also more spread out,” Egan said.

Egan said advisors need to discuss how these and other shifts will affect each client differently. For example, with life expectancy expected to increase, advisors must prepare their clients for less rosy financial choices.

“As life expectancy goes up, you’re planning for a 25-year retirement with some pretty hefty health expenses at the end of it,” he said. “So a big part of the wealth transfer might be from retirees to healthcare providers.”

The Future of Financial Advice

So, what will advisory services look like as the field is digitized? Egan thinks that while there will be more robots, financial advice will become far less robotic. “We’re going to see a nice renaissance that’s far less about investments and more about what’s important in their lives,” Egan said.

Harmsen noted a counterintuitive effect his company has seen among clients. “When some think of AI, they think of trading signals and sorting through all the data to find me the next big stock, whatever it is,” he said. “And I think we’ve sort of just gone in the opposite direction and like to use AI to slow down, cut through the noise, and focus on what actually matters.”

Why Are Financial Institutions Focusing on Digital Improvements?

The reasons include market demand, lowering firm costs, and the ease both advisors and their clients have with newer technologies. The rise of digital-native companies has set high standards for customer experience, and financial institutions are adapting to meet these expectations with digital products.

Are Newer Technologies Improving Financial Predictions?

Technology, particularly advances in AI and machine learning, should at least improve the amount and accuracy of the financial data used in risk assessments. These technologies might identify patterns and insights that traditional analyses might miss by analyzing vast amounts of market data and historical trends. This should lead to more accurate predictions about market movements, but it could lead to overfitting and overinterpreting supposed trends in the data.

Can Changes in Financial Technology Democratize Financial Services?

By automating some tasks, newer platforms can lower the cost of delivering financial advice, making financial services more accessible. Software and apps have lowered some barriers to entry to financial advice, allowing access to individuals who previously might not have had access to these services because of time, cost, or geographical location.

The Bottom Line

Key technological trends are changing how financial advice is accessed and how informed investors are about the assets in their portfolio. For example, AI tools are starting to handle real-time portfolio analysis and tax optimization strategies.

Egan argued this could leave human advisors more time to concentrate on big-picture questions, as automated platforms calculate portfolio returns and such for them. “By taking away the least human parts of financial planning—the math, the investment management, and the rebalancing,” he said, “we’re allowing ourselves to become more human and [we can] spend more time having the tough conversations that only we can answer.”