Even though the profits of using this kind of technology in many different industries are vividly obvious, many businesses have been sluggish to adopt AI and Deep Learning due to high implementation costs. However, the financial industry has been relatively quick to follow the money. Financial advisers and RIAs who have already been shaken by industry changes are in grave danger of falling behind if they ignore this technological advancement, after all.
The importance of trading robots
Various industry surveys estimate that the amount of assets managed by Robo-advisors will continue to increase at breakneck speed, with more than $250 billion presently under management in the United States. Many people believe that Robo advisers will dramatically diminish or eliminate the necessity for “people” advisers at some point in the future. The imminent extinction of human financial advisors has been excessively exaggerated though. While Robo-advice has thrown the advisory profession into disarray, it has not completely replaced people. In reality, technology has helped to improve the delivery of advice in general.
Robo advisors today do not rely heavily on AI in their implementations. The vast majority of them merely automate techniques that conform to some kind of modern portfolio theory and construct optimal passive indexed portfolios. They then monitor and readjust customer portfolios on a regular basis. But the investing approach is not based on machine learning. AI is used by high-frequency trading desks to develop new and creative trading methods that function on a millisecond basis.
As we have said, the financial market is especially advanced in terms of technologies, and the activities are all digitized. This creates a lot of opportunities for the different industries such as forex, crypto, or stock and most importantly, helps them to improve clients’ services. It is difficult to say which of those industries is advancing in this regard the most. With the speed that the forex market requires in order to execute trades, the importance of technological advancement here is particularly steep. There is an inside-industry AI development platform that provides the proper assistance to those who are already involved in the market. For example, automated robot trading in Forex is a widely accepted practice already. Several years ago, no one would have imagined that the software would do the job instead of humans and the convenience that is afforded by these developments is irreplaceable. Traders do not have to calculate the fluctuations on their own anymore – the information is already analyzed and delivered to them in the form of statistics or charts or similar formats.
AI and ordinary investors
A smart investor can still take advantage of the benefits of artificial intelligence in choosing stocks or good timing, but it will not be via most Robo advisors. Instead, a number of exchange-traded funds have emerged that employ expert AI techniques and then allow regular investors to own shares in the strategy.
Artificial ETFs are intelligent ETFs that are administered by special programs that follow predetermined rules and examine funds to discover the best performers within the parameters of the rules. Several artificial intelligence ETFs have been launched in 2017, and they are outperforming the rest of the funds market. They have an edge over traditionally managed intelligent ETFs because of the huge quantity of equities they can evaluate.
Future Perspective
Many people feel that the next phase for AI is for it to help advisers manage their relationships rather than just make trading judgments. For example, during a client conference, an adviser may utilize AI to get that particular client’s information and model the performance of prospective recommendations, a job that would have traditionally required a team of analysts several hours or more.
While many financial planning tools currently have these features, AI advancement will only serve to increase a software’s analytical and predictive capability. This is complemented by AI’s Deep Learning capabilities which will free advisers from many of the monotonous monitoring and administrative activities that presently consume a large percentage of their time. While AI may be able to displace certain human adviser or support positions, its analytical powers will almost certainly lead to the rise of more specialized interpretative positions. It is doubtful that human advisers will ever want to let their systems send out data and analyses to clients without reviewing it first.
Automated client service
Many client questions are likely to be ones that may be answered by an AI-driven assistant guided by criteria that are already established. This virtual assistant might analyze the client’s inquiry and present them with some suggested choices to consider and discuss.
The system might be set up to analyze the client’s financial condition on a regular basis, presenting viable choices as the client’s position changes. For example, a recent significant change in tax legislation would cause the system to examine the effects on all of the clients automatically and compute profitable options. Similarly, if the management of a mutual fund employed in one or more client portfolios changes significantly, the AI-based assistant may send an alert to the advisor, prompting them to decide whether the fund should be kept or replaced.
Costs of lagging behind
While many of the aforementioned possibilities appear to be far off in the future, they are currently being implemented by industry titans. Advisors, who fall behind in technology, especially those working with the next generation of tech millennials and Gen Z customers, face a significant risk. These clients are set to benefit from the greatest inter-generational wealth transfer in history and they expect their advisers to engage with them on their terms.
AI and similar technologies have not yet replaced human financial advisers. They will improve analytical capacities and automate a lot of routine back-office tasks. AI and all the related technologies should be leveraged by advisors who want to stay on top of things and effectively incorporate competent advancements into their practices.