Personal Financial Planning
Artificial intelligence, Blockchain, and robo-advisors are technological advances Greg Horning would have never imagined 26 years ago when he co-founded SC&H Group.
But Horning, who focuses on servicing high-net worth individuals in the areas of taxation, personal financial planning and multi-generational family wealth planning, knows the importance of change. “Every piece of our business is substantially different than it was 26 years ago,” he says. “Everything is going to change. We need to be right behind that heat shield of the spaceship.”
In the latest installment of NETFORCE – a series exploring how top performers are navigating today’s chaotic business environment to realize their true net force and accelerate forward – Horning warns that no matter how the financial services industry changes, one aspect will remain constant – relationships. When markets unwind, confidence is shaken and the financial world seems to be crumbling, strong relationships will calm anxious clients, not robots.
Why do you believe SC&H is a NETFORCE?
As a NETFORCE we are not only focused on continuously improving our business, but improving our clients’ financial outcomes. This means using tools as they evolve to deliver the most valued services that a financial services firm might offer. In that light, technology already plays a substantial role in our efforts and will continue to allow us to do so more efficiently. We need to be continuously focused on developing our capabilities. That doesn’t mean being on the bleeding edge of technology implementation, but we certainly want to be on the front end of using resources that we can leverage to make our clients more successful. While technology is important, a lot still revolves around relationships.
Our forward thinking strategies position us to support our client’s needs, no matter the platform, but also allows our firm to maintain the ability to provide personal advice to our clients. Relationships and communication still remain key to financial success.
Isn’t that strategy old fashioned?
Relationships may develop differently in the future, new generations may be more comfortable receiving and developing relationships without a face-to-face, same room kind of interaction, but even if it’s over a device, you are going to develop a relationship. At the end of the day, I have a tough time believing that high-value decisions are going to be made entirely via delivery of advice through a completely machine generated algorithm. There is too much complexity in the world for me to foresee any time in the future where that’s fully automated.
A firm consistently accelerating forward is going to take advantage of the technologies to provide the individual interactions that aren’t value added, but they’re necessary to the transaction. Technology is going to drive the cost of delivering those actions down and down and down to the point where it makes no sense to have a human involved. The difficulty I see is the ability to develop a trusted advisor relationship.
So, using technology strategically is key. What will drive change over the next five years?
Blockchain, machine learning, artificial intelligence eventually will completely alter the way our business is delivered to our clients. Currently it is probably a little over hyped as it is going to be much more incremental than that. We are not there yet. However over the course of 5-10 years those walls will come down.
An area I think we will see next as part of those incremental steps is the use of electronic signatures to file tax returns. Additionally I believe when Blockchain is commonly accepted it will change the way a tax return is prepared. I can foresee a world where, if every transaction we enter into is captured, then at the end of the year all transactions you entered in throughout the year should be categorized, entered, and boom your tax returns are prepared and ready for review at the press of a button.
If this happens will we have jobs?
That could be one result. Certainly, we would need fewer people to generate the volume of tax work, but in reality, we would need far more people. We wouldn’t be able to handle the volume today without the technology. The other thing that has happened along the way is technology has allowed government to increase the complexity of the tax law. While we are far more efficient because of technology the number of hours it takes to generate those returns probably hasn’t declined that much because of the additional complexity of the tax code. Technology will continue to drive everything forward and we need to be prepared to take advantage of opportunities and identify them, and not be surprised when they hit.
We need to be thoughtful and focused on how changes are going to come, but we need to do so while thinking about where we are today.
How is AI changing your business?
I execute on tax and financial planning work, and we are beginning to see robo-advisors. Naturally this reality has posed the strategic question of “Do robo-advisors have a place in our business to serve a piece of our client base or our future clients?” The general consensus when discussing this topic – a lot of the investment management side of our business can be programmed, however technology partnered with the relationship of a trusted advisor will withstand complete automation based on certain financial strategies and beliefs.
If we have a certain set of beliefs about successful investing, let’s say we believe in diversification, asset allocation, keeping fees low, and turnover in accounts low, we can program that. If I sign a contract today, tomorrow a new client could go to our website having never talked to anyone internally, click a button and get some flashy material to market and say, “I want to open an account” and fill out the forms and deposit $10,000 with their risk tolerance. And boom it’s done. They have an account and trades are placed without talking to anyone internally or interacting with us. What hasn’t been captured is that these clients are human beings.
Is that a bad thing?
Rewind back to August 2008, when the market is down 40% – that is exactly the time you need the relationship. You need someone to talk to, someone calling you and addressing your fears and reiterating the importance of your goals. A machine can present that same article to you, but having the ability to not act at that moment is very difficult from a behavioral finance perspective. Being able to have a conversation with someone who knows you and understands your insecurities can have an impact. The biggest decision you’re going to make is not to sell out of the market. I don’t know how a machine is going to do that. We need to have a different relationship with that next generation and it may start with robo. We’re studying how to do that.
In the meantime, are you finding other ways to leverage technological advancements to help customers?
Absolutely. Where technology is evolving and is being improved upon as we speak is in the area of data aggregation. We are using data aggregation tools on a dashboard so our clients can link any accounts – bank accounts, investment accounts, mortgages, credit cards, life insurance policies. You name it, it can be linked to the dashboard so we can get real time updates. In the past, we spent a fair amount of time interviewing clients and requesting updated statements to allow us to give them ongoing advice. Today, if we leverage some of these aggregation tools I can call up a client on the dashboard and see what their balance sheet looks like in real time and compare it against a year ago. I can apply what is going on in Washington today in tax law to their situation without having to reach out to the client to get updated data as I already have it at my fingertips.
Tell us about the evolution of your process and people? How are they evolving? How steep is the learning curve?
The learning curve is steep, so a young person needs to be able to develop consultative skills more quickly, so they can add value to data analysis and deliver that to the client. The way [Ron Causey] and I developed our ability to provide consultative advice is having seen a million transactions over 30 years. How do you develop that capability in a shorter time frame?
While entry-level employees may see a drop in their current responsibilities, it will certainly be replaced by a greater need at the higher level. This means that they will need to become more specialized earlier in their careers. Their learning curves will be accelerated. Historically, a professional would evolve starting with…”a very broad base of tax, audit, and consulting work in different industries and touching different technologies.” As time goes on that has become, “I’m focused on tax” or “I’m focused on consulting” and you develop a niche in the industry and as their career progresses they end up developing a specialty along the lines of consulting with hospitals with the sole focus of cardiac care. That specialization comes much earlier in careers. It creates a difficulty in the structure of talent.
What is your process for bringing in business and how does that change in the future?
Everything in my world, whether it be tax, compliance, and consulting or financial planning, is extremely relationship orientated. And I believe that continues for a long time to come. How we generate the initial contact may change. How we evolve the relationship to one that’s more personal may be a longer process, but the relationship may be one that’s very technologically driven.
But again, that’s a slow evolution. It used to be we’d spend a lot more time on the road going to visit clients. Now a certain subset of clients are much more willing to do video conferences. That subset grows and it drives costs out of the system. Travel cost, loss of minutes on the road. Think about self-driving automobiles in a world where I can use two hours of drive time to be on the phone, be on the computer interacting, and videoconferencing with clients while the car is driving me to my next meeting. I have every belief we will see this happen.
So, you will rely more heavily on technology to bring in business?
There will be more new business generated from websites. If we go down this robo-advisor avenue it will still originate with referrals from clients. We get referrals from clients and referrals from the people working within these four walls and that’s where business traditionally comes from.
How that physically happens probably changes to some degree and we can probably do more over time – some targeted and driven messaging with prospects that we don’t know or we identified through AI. Something that identifies what our current client base looks like and searches for more clients like that.
In this world, we are still talking about people’s and families’ money. I don’t think we’re there yet where people are willing to say, “I like what this email says, here, invest my money.” That’s where the relationship comes in. But as comfortability evolves with the younger generations – perhaps we’ll see these relationships originating in more digital-heavy environments.
As a NETFORCE how do you keep your edge?
We had a directors meeting in July where we started talking about an innovation committee we established, and my question to a younger director was, “What was the reaction of the young folks serving on that committee? Were they energized by this?” Because that’s what should drive things. It should serve as a clear indicator to our people that we aren’t sitting back waiting for it to come to us. We need to be thoughtful and focused on how changes are going to come, but we need to do so while thinking about where we are today.
Lastly, another part of keeping our edge as a NETFORCE is taking calculated risks. Along the way we have tried all sorts of things and some didn’t work, but guess what? The M&A business, the Capital Group, and Business Performance Management were a huge success. The financial services and financial planning service lines had a lot of disbelievers, but it’s proven to be a valuable component of the business. We‘ve always tried to be more. We’re constantly looking forward to the next opportunity.