Questions about technological disruptors, artificial intelligence and robo-advisers have become par for the course in our line of work, with clients often looking to gather some information about the impact these developments will have on their business. In truth, the tangibility of the threat is hard to quantify although several of our study results indicate industry players are ever more aware of the changing competitive landscape.
Progress in the realm of artificial intelligence has often been both welcomed and derided, at times simultaneously. “Our hopes and fears about AI are not only about far-flung futures. They are often about today’s AI, which already has a substantial influence on our lives, and seemingly for both better and worse. For example, AI is part of both the problem and solution to fake news. AI algorithms have been used to support more impartial criminal justice, yet are accused of racial bias,” explains Philip Boucher, a member of the Scientific Foresight Unit within the European Parliamentary Research Service, in a March 2018 paper.
When it comes to fund distribution, technology could make, and has made, access to investment funds a lot easier. However, we run the risk of self-directed investors losing out on vital professional advice which could help structure their finances in a more sustainable manner. Until a couple of years ago financial advisers largely downplayed the impact robo-advice models would have on their industry. Nowadays however the picture is changing with advisers globally becoming more cognisant of competition from various new sources including technological industry disruptors.
On the product provider’s side of the coin, technology and automation has been welcomed, though not without a degree of caution. The black box model came under fire following the financial crisis as high levels of volatility highlighted the potentially destructive nature of these strategies. But as technological advancements continue to be made in computing power, big data and AI, the application of some of these methods in the realm of fund management becomes more alluring.
However, despite these developments, concerns remain. Gary Smith, the Fletcher Jones Professor of Economics at Pomona College, writes in a MarketWatch article: “We should not be intimidated into thinking that computers are infallible, that data-mining is knowledge discovery, that black boxes should to be trusted. Let’s trust ourselves to judge whether statistical patterns make sense and are therefore potentially useful or are merely coincidental and therefore fleeting and useless.”
A large part of the answer lies in managing the risk artificial intelligence poses. Yogesh Malhotra, founder of Global Risk Management Network, wrote a paper giving insights into the most critical role of risk management controls. He says: “Such role of risk management controls is most critical in not only getting the best out of AI, but also ensuring that the worst fears about the AI do not really come true.” This applies to both the distribution and the production side of fund management.