The millennials’ love for everything online acted as a catalyst for a new type of financial service. The robot adviser can be programmed to manage an investment portfolio, your retirement plans or any other combination of assets. They are available 24/7 and never get tired of being questioned. Also, they don’t charge by the hour. However, they can only tell you what they have been programmed and don’t have the creative thinking of a real adviser, that is why you should ask yourself, are you ready for this revolution?
How do robot advisers work?
Artificial intelligence has already adapted to various domains and finance is no exception. Trading algorithms have been used by investing companies for some years now. Companies had perfected the systems enough to offer them as a service for individuals. The abundance of data about the clients generated by their actions such as purchases, travelling or even social media interactions can be used to create client profiles. An old-fashion survey is also sent out to determine the client’s preferences regarding risks and goals.
Starting from these profiles, the algorithms can generate portfolios and trading schemes that are congruent with the client’s risk aversion, desired gains and in tune with their situation like their age, expected remaining time until retirement, and other factors.
Pure robot or hybrid system?
There is little indication that we will have a fully automatized industry of financial robots soon. Most likely, there will be two different threads, a more straightforward version just right for repetitive tasks and a more advanced, AI hybrid system designed to help human advisers generate better advice for their clients. Like in the case of AI for medicine, we can expect that a hybrid system can outperform both machine or human taken separately.
Yet, bank clerks should start updating their skill sets fast. As early as 2013 there were reports about more than half of the jobs in the financial sector to be considered at high-risk of automation in the next 20 years.
The main advantage of robot-advisors is, of course, the cost. Although the development of these systems is expensive, when used by the masses, by splitting the charges, the actual expense becomes only a fraction of what a human consultant would ask for.
The practice is to charge a percentage (usually 0.5%) of the managed portfolio’s value which is withdrawn from your account annually. If you would opt-in for the minimum recommended investment of about $10, 000 you can expect an initial fee of $50 per year, as described by a company who offers these services through the Future Advisor program, https://aaacreditguide.com/futureadvisor-review/, and additional fund-related, smaller fees. Combined, these charges almost add up to one or two hours of personalized financial consultancy.
Progress so far and future plans
For example, JP Morgan’s program, COIN (Contract Intelligence) is already used to analyze loan applications and decrease the number of possible errors. The powerful AI-powered system managed to cut 360,000 hours of work to mere seconds by implementing machine learning on contract information.
You can expect to see more of these services in the years to come, as institutions are looking for new ways to extend their range of services while remaining competitive on the market. Most large banks and investment funds already have a project pilot or are heavily investing in this area. Now, the only question is if the public is ready to hand over their life investments to a machine, regardless how smart.
Founder Dinis Guarda
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