The world of robo-advisors and artificial intelligence is here, and four-year MDRT member Jonathan Peter Kestle, CLU, B. Comm, isn’t worried. He uses technology to save clients hundreds of thousands of dollars and himself hours of work.

Yes, there’s a value proposition of robo-advisors offering clients low fees, noted Kestle, of Ingersoll, Ontario, Canada. “That’s a short runway, though. It’s a tough living selling only term life insurance,” he said. “Term insurance is a commodity. It’s a race to the bottom market.” Kestle believes consumers will soon be able to go to a supermarket in Canada and buy it.

“If you’re not a commodity, then you’re OK.” People need financial advice, especially as their lives and health become more complicated.

“Technology won’t replace financial advisors,” Kestle said. “It’s the advisors using technology who will replace advisors not using technology.”

Finding tax savings

Kestle’s clients are age 55 and older who are nearing retirement. They know approximately how much money they have accumulated for retirement. Their challenge in retirement becomes how to strategically spend those funds.

Often, Kestle said, advisors approach this based on current best practices; however, that can come up short since it doesn’t offer a customized solution for each client. That task, when done manually, is daunting. In Canada, one person could have up to 15 different sources of retirement income and a working couple could have as many as 30 sources. These range from a mix of government pensions, company pensions, corporate assets, registered savings, tax-free savings and so forth.

In these accounts, there are specific ways they work and tax efficiencies regarding when to withdraw from an account in relation to all the other retirement accounts in someone’s portfolio. When done to the maximum benefit, the tax savings for some clients can be more than $100,000.

Advisors tried to tackle this tangle of retirement accounts and stipulations around each of them and found they couldn’t do it, or at least not efficiently enough for this to scale to a sustainable business. And that was a problem. A problem that didn’t
have a solution — until Kestle and his firm’s co-founder, 33-year MDRT member Ian C. Moyer, also of Ingersoll, hired someone to build a solution.

Building a solution

Kestle helped form a new company, Cascades Financial Solutions, and hired a computer science university student to take their retirement decumulation process and build an algorithm based on it. Cascades’ focus is to illustrate the value of advice by revealing the tax difference of competing withdrawal strategies. The student was hired part time, but began working full time on the Cascades project after he graduated.

Using Cascades, advisors in Kestle’s firm can show clients the results of this algorithm, which went far beyond the current trends and fads in financial advice. “We let the math do the work,” Kestle said. “When we show tax savings, we win the cases. We take the complexity and boil it down. Technology is not the be all and end all. The advisors are still needed. Technology is a tool for the advisors that gives them a competitive advantage.”

Expanding client relationships

Another way Kestle uses technology is to provide digital client onboarding, or to act as a digital concierge. At his firm, they are developing this process starting with sending the Cascades digital fact-finder to prospective clients.

“There’s alpha and beta in the traditional world of investing, which talks about risk premium and volatility. A third piece emerging is gamma. Gamma refers to the additional value that investment planning provides by helping clients make more-informed decisions,”  Kestle said.

“We invest in funds with professional investment managers. Because we don’t choose the investments, it frees up our advisors’ time to talk about their clients’ lives and navigate the complex tax rules,” Kestle said. “We can walk them through bad markets and remind them to look at the big picture. And we look at our thesis to see if it still holds weight for that client. The role of the advisor is to be a sounding board and a guide. It’s not to get caught up in the administrative functions of day trading.”

"If you’re not comfortable with technology yourself, hire someone who is and let them create solutions for your clients and other advisors," Kestle said.

Process vs. hiring for experience Why ATMs didn't replace bank tellers 

While technology and artificial intelligence put some financial advisors on edge, it’s far from the first time technology has shown up in the financial sector. Decades ago when automated teller machines (ATMs) started becoming more common, financial pundits made dire predictions about the demise of human bank tellers. It didn’t happen. In fact, in the United States teller jobs have been on the rise since 2000 and growing at a faster rate than the labor force.

What happened? After ATMs starting cropping up, sometimes more numerous than parking spots in congested areas, a typical urban bank branch went from needing about 21 tellers to 13. This meant bank branches were cheaper to operate and banks opened more branches. It turns out, customers need to talk to people when their banking becomes more complex than withdrawing or depositing money. So, overall, more tellers were needed, according to American Enterprise Institute, a public-policy think tank.

Contact Jonathan Kestle at jonathan@ianmoyer.com.