The views expressed in this article are not necessarily those of the FIA. The article below was supplied by 2018 FIA partner, 1Life.
The robots are rising! They make better financial decisions! Traditional financial advisors are a thing of the past! None of these statements are necessarily true. Laurence Hillman, the MD of 1Life discusses why financial advisors needn’t quit their day jobs, just yet.
There’s a lot of industry and media buzz about robo-investors – investment programmes powered by artificial intelligence – at the moment. Artificial intelligence has proven very successful at predicting the markets, forecasting even unexpected events like Brexit, and making intelligent – although not always perfect – investment decisions.
Of course, robots can do this – and do it well. They have the ability to run multiple complex scenarios in seconds, taking into account various different market forces, to calculate the most likely outcome, and then invest in shares or unit trusts most likely to weather the coming storm or ride the coming wave. Their predictions are not always perfect, but they probably do about as well as well-informed humans do, most of the time.
I have no doubt that for many people – from newbies to high-end investors – robo-investors represent an appealing proposition. They’re good at what they do, their fees are lower than human advisors, and they are easy to access from the comfort of your own home, office or holiday destination. If you have a few extra hundred or thousand to invest each month, why not hand it over to a robo-investor?
In fact, even if you have taken the advice of a human financial advisor, chances are that they have been using a robo-investment system to select the best shares for you – so it’s not as if you’ve been missing out on the computational power of artificial intelligence anyway. So surely cutting out the middle man and interacting directly with the programme is the next logical step?
While artificial intelligence might be excellent at predicting market outcomes, it simply isn’t as good at dealing with people. Robo-advisors can’t reassure or explain or put an investor at ease.
While these kinds of investment programmes and algorithms might make you fill in a questionnaire to get an understanding of your investment needs and priorities, they might not dig a little deeper when you are hesitant or uncertain, they might not explain the concept you don’t understand in question five, they might not help you to understand why a stated preference is not necessarily the best financial priority for you to have right now.
Here’s the crux of the matter: Investing isn’t something that one does with the spare cash they have lying around. Investing should be an essential building block of a sound financial strategy. That strategy should take into account the investor’s current financial situation, including debt, marital status, number of children, retirement savings, insurance products, long-term plans, hopes and dreams. It’s not a nice-to-have, it’s a must-have – and since it’s a must-have, it should be done right.
As well as being part of a broader strategy, intelligent investing should be guided by an investor-specific strategy of its own. Investing each month and hoping for growth is not enough. Investors need to consider how long they want to remain invested for, what they need the money for, how much risk they are willing to take for the possibility of greater returns and consider the possibility of needing to access their capital sooner than they think. All these elements should guide the investment decision.
While a programme can ask these questions, and even explain the reasoning behind its decision making, personal advisors are still the best at matching an investment strategy to an individual. Simply put, humans are the best at making human connections. And since money, investments and future planning remain deeply personal processes, I believe that the human touch will remain an essential part of the equation for a long time to come.
That’s not to say that the robots will not rise. I believe we’ll see a future in which artificial intelligence takes on more and more of the projection and forecasting and modelling that humans may have done in the past. And investors, especially the younger generation, will continue to make ever greater use of their services.
But, as I mentioned earlier, your financial advisor is probably already using a system like this to help make decisions anyway – giving you the best of both worlds: the computational insight AND the human touch. And I think that this is how it’s going to be for a long time yet – humans and machines working together to deliver the very best outcomes for clients.
Because who wouldn’t want the computational power of robots coupled with the understanding and compassion of human beings? I know what I would choose.