Question

Why does the efficient market hypothesis reduce the demand for financial advisors?

Answer 1

Part of a financial advisor's job is to allocate money in the best available asset or security (eg: stocks and bonds). So they look at market data and use mathematical models to help judge on where to put money. Their goal is to so called "beat the market", meaning they want to earn the best return compared to other players in the market. Doing so will allow them to "buy low, sell high" which is a common cliche in finance. Though it's a very good rule to follow of course.

The efficient market hypothesis says that whatever the stock price is currently, it reflects everything about that company. In other words, there are no hidden facts that may surprise investors to drastically change the price of the stock. All information is completely transparent. What this means is that anyone can determine where to put their money without the need for a financial advisor.

I don't think demand would be completely wiped out since even if in a 100% transparent environment, people would still prefer to have others manage their money or not want to deal with complicated math formulas. However, demand would be reduced to some degree. In reality, there are always hidden factors that don't fully contribute to the cost of a security, which is why the efficient market hypothesis isn't fully applicable in every situation. So this is likely why financial advisors are in demand and are paid well.