Big data, artificial intelligence, blockchain, machine learning and robo advice were terms unheard a few years ago. Today, they are buzzwords. Prediction is that this wave of disruptive forces from firms with technologies can dethrone the old players in the business.
In today’s dynamic and fast-changing world, a computer can definitely do a sophisticated job rather than an expensive adviser picking out the stocks and bonds. But the question is, can asset allocation and investing be left entirely to the robots?
I agree that with access to an array of index funds and exchange traded funds, even a computer can devise an investment strategy for most people, but does this really drive away the need of a human adviser? Sophisticated advice from a personal adviser whom an investor can talk to, share goals with and understand and realise his/her expectations on this path of financial advisory cannot be ignored in a world with investor’s complex needs and demands.
What role will brick and mortar financial advisers play in the age of robo and app based investing?
The rise of robo advisers has been a major development in the past few years. This is a category that includes a hybrid of digital advice and human advisers. The idea is to not go into fully automated investment services but pair these computerized services with some hand-holding from human advisers (How human financial pros can up their game to compete with robo advisers, 2017).
With financial lives becoming more complex, most investors want a small dose of human contact from their robo adviser. Investing is a lot about individual attention. So an increasing number of automated offerings now include a real person. In the growing world of hybrid services, we need to find our perfect combination of digital advice with human advisers that is most suitable for the portfolio. As said by the CEO of Morgan Stanley, James Gorman “Someone who can sit with you and work through a series of complex decisions — that is not going to go away.”
In the years, the robo advisors have majorly flourished. A number of Robo-advisory startups such as Betterment and Wealthfront in the US and Nutmeg in the UK offer investors ease and simplicity at a very low price and are growing rapidly. But, one of these leading independent players in the market, Betterment even after amassing $7.3 billion in assets across 226,000 customers, they recently added two additional tiers of service, each of which offer financial planning experts, in the form of humans, to consult on broader financial issues. These humans can tweak Betterment’s recommended investment allocation— a mix of stocks and bonds—which, were originally created by algorithms based on answers to an online survey (Why Robo Advisors Might Need Human Help After All, 2017).
The answer to the present scenario is that our emotions are still too complex for artificial intelligence and the life savings are layered with emotions. When a client’s assets grow with age, robo-advisers are ill-equipped to help clients with complicated affairs (How Robo-Advisors Fall Short of Human Advisors, 2017).
How might advisers add value?
The real value added by human advisers is behavioural finance. Hence, I believe this massive opportunity should be seen as an approach to broaden the advice for a much broader world. Financial advisers’ presence and need cannot be questioned or diminished because of the digitisation, instead can add value in expanding the scale of businesses and the financial services industry.