Journal of Financial Planning: January 2019
Travis Briggs, a veteran of the finance and wealth management industry, is CEO and partner of ROBO Global, an index, advisory, and research company, where he manages the firm’s business strategy.
When you think about artificial intelligence, does the vision of a sentient robot trying to overthrow its human creator or a disembodied voice refusing to listen to its commands come to mind? In Hollywood, AI is frequently painted as dangerous—competing with humans for dominance, control, and power.
In reality, applications of AI in daily life can be extremely beneficial. What many people don’t realize is that AI is currently just an extension or amplification of human intelligence. AI is most effective in mastering the repetitive and automating tasks. Artificial intelligence has the capability of analyzing massive amounts of data and making sense of it all using rapid computer processing. Why now? It is estimated that more digital data has been created in the last two years than in the entire previous history. AI now has enough digital data to be extremely effective across multiple fields.
Take the board game Go or chess playing machines, for example. These machines have processed every possible outcome and can determine the optimal move for every situation. Using object recognition capabilities, AI can process five million MRI scans and almost perfectly detect patterns indicative of malignant tumors. The human brain is incapable of accomplishing either of those feats.
Moving to the world of finance, you can imagine the predictive power of AI when analyzing the markets, helping to boost financial planning practices in ways you may not have thought possible. After years of heavily researching AI technologies and its many applications, I’ll outline how this powerful technology can aid various aspects of financial planning and why you should embrace it, not eliminate it.
Applying AI to Portfolio Allocation
To successfully implement AI, it’s critical to remember its skillset. Take processing the enormous amounts of market and economic data that exist. The human mind isn’t capable of absorbing, calculating, nor running all this data in one lifetime. AI can in mere seconds.
Imagine how many ways you could utilize the voluminous sets of historic stock market data. For starters, it would save you valuable time. AI’s acquired knowledge, which continues to increase and improve with the consumption of data, could then follow up with allocation recommendations and decisions. Although these decisions may not be perfect (after all, the stock market is not a chess game with set rules and boundaries), it could easily support a portfolio manager’s process.
The unpredictability of the stock market means that a human touch is necessary at the final stretch. As financial advisers and planners, you will weigh in at the end of the process but won’t need to spend nearly as much time crunching data, ultimately freeing yourself up for more important client interactions like explaining how client portfolios can weather market storms.
We’re already seeing AI applications in financial advice with the introduction of automated software, commonly referred to as bots. Financial planning technology, in particular, is on the rise. According to the 2018 Software Survey conducted by T3, Advisor Perspectives, and Inside Information, 95 percent of adviser respondents reported using some type of financial planning software.1
Beyond automated software, large financial institutions and advisers are using AI to do research on clients, markets, and loan rates; manage ETFs; and calculate tax withholdings. In some cases, AI can even generate ideas for the “best interaction” with a client, similar to the suggested responses you might see at the bottom of Gmail.2
According to the 2017 Greenwich Associates report, “AI: The Coming Disruption on Wall Street,” 17 percent of investors currently use some form of AI; 56 percent plan to integrate it into their process; and 40 percent will increase spending in AI development.3
For example, the $50 billion quantitative hedge fund behemoth D.E. Shaw recently launched a new research division to focus solely on machine learning. The firm hired Pedro Domingos, a professor of computer science and engineering, to head the division. D.E. Shaw won’t be the last firm to move in this direction.
Remembering AI’s Limits
Always take the limitations of AI into consideration before implementing the technology.
AI requires training and time to work most efficiently. When it comes to something as important as clients’ finances, you’ll need to make sure to act as a guiding hand for the technology. Investment guidelines and recommendations will all need to be double-checked and confirmed.
In addition, your clients are individuals. What works for a $10 million, single client is different than what works for a client with $1 million, sick parents, and five kids looking forward to college. You’ll need to consistently educate and update the AI to accommodate for each individual client and their preferences—it can’t fully understand the differences in opinion, personal life, and personality that come with each client like a human can.
Ultimately, finding the balance between AI and human participation is going to take some getting used to, but it’s nothing to stress over. It’s a partnership meant to boost efficiency, and one that will develop over time.
Jobs like team-building, motivation, and empathy for individual client situations can never be done by AI, and they never should be. But however critical to your business, you also can’t afford to sacrifice the essential tasks of running the numbers and reviewing the numbers. By passing the data to a technology specifically equipped for this purpose, you can open up a world of possibility, improving your clients’ relationships with you and their portfolios.
Allow AI to enhance your business. After all, it could very well be one of the best partnerships available to you. By embracing the technology, you will have the time to give your clients a personalized, human touch.
Endnotes
- Access the survey at technologytoolsfortoday.com/uploads/5/1/6/8/51686097/2018_software_t3_survey_report.pdf.
- See the InvestmentNews article, “Artificial Intelligence Coming to Life in Financial Advice,” posted April 14, 2018 at investmentnews.com.
- Access the report at greenwich.com/equities/ai-coming-disruption-wall-street.