We recently published a series of three CPD-accredited articles in FTAdviser on emerging technologies, such as artificial intelligence, data science and machine learning. Why? To help educate financial advice firms on how technology is already changing the face of their market and what opportunities this could present for them.
As a financial adviser, unless you are interacting with artificial intelligence, data science and machine learning (knowingly that is, because they are employed already in many markets) your perception of what they are and how they might impact your business is likely to be limited and possibly influenced by some of the myths and misconceptions that exist.
The term ‘robo-advice’ has been banded around the industry for close to a decade, first envisioned as a potential threat to traditional advice, then, as companies such as Nutmeg entered the market, as maybe something ahead of its time from a consumer and advisory perspective. Now, more and more advisory firms are seeing the potential for bringing these emerging technologies into their businesses.
But before they do so, it is important they understand exactly what is meant by each of them and what are the challenges and the opportunities involved. Our three articles therefore, had very specific agendas.
Laying the groundwork
The first article laid the groundwork, looking at data science and explaining what machine learning and AI are. We used examples that would resonate with the audience; practical financial services sector-specific use cases, such as using data science to look for patterns in asset or fund performance.
It was important that we dispelled one key myth, that robo-advice would result in the advice process being outsourced completely from a human to a computer. We do not see that occurring any time soon.
Rather, we see technology undertaking some of the early-stage filtering, or client segmenting activity, which could then be picked up by a human to apply their more nuanced thinking to the individual’s case. This could involve overriding the automated path first taken.
Regulation and compliant processes, are extremely important here, including an understanding by the advice firm of why a robo-advice system has made a particular recommendation for a client, and adherence to data protection principles.
Our take was that we should not rush to build very complex robotic advice processes to replicate large portions of the advice journey because we will very quickly end up with things we do not understand.
AI for investor outcomes
Having laid down the educational foundation and dispelled some myths along the way, our second article looked more specifically at using data and AI and where financial services could learn from other sectors to improve investor experiences and outcomes.
Here we focussed on how other business sectors are using advanced technologies to great effect in the way they conduct their operations, showing how the ability of AI to analyse huge data pools, understand relationships, and gain insights over logistical strengths and weaknesses, can create massive benefits throughout the supply chain – Amazon is a prime example (no pun intended).
Where we see similar viable opportunities in the financial advice market, is where data analysis can be used to help advisers create plans and approaches for clients and where digitalisation and automation can be used to help scale up businesses to make them more profitable and reach a wider wealth accumulating client bank. In general this can be achieved through digitalisation and helping people to self-serve their investment and savings needs; and automating processes and tasks, freeing up time so advisers can deliver advice to more people at a lower price point.
Our view is, however, that robo-type solutions should never be pitched as a direct replacement for bespoke personalised advice.
The opportunities overture
Our third and final article addressed head-on the threats and opportunities in using data science and machine learning models within financial advice.
Here our aim was to point out the opportunities available now and how what may seem like threats today could be the opportunities of tomorrow.
Data is the fundamental element underlying both threats and opportunities. The collection and aggregation of data in our industry is a massive opportunity but also a potential threat. The services we build using data can be of huge benefit to both the individual and society, as long as we continue to respect an individual’s data rights and build open platforms.
Financial services firms’ privileged access to client and customer data is one of the market’s richest opportunities, but it brings some potential concerns.
For example, data gathering favours larger players which allow them to scale and take greater advantage of data, allowing them to scale further.
On the counter side of this, is the need for individuals to own and control their own data and be free to share it with whomever they want – but, importantly, in a safe, secure, simple and transparent manner.
Adherence to GDPR rules is another overriding factor – which can be helped by data lineage, which takes the origin of data and follows what happens to it and where it moves over time and data audits, which cover questions such as what data you hold and why, how you collect it, where it is stored, what you do with the data.
We believe that those who see their role as a responsible steward of someone else’s data, rather than as the owner, who intends to leverage it as far as possible, are more likely be on the right side of history (and the regulator).
Indeed, how firms hold and use the data they have, could become a market differentiator.
There are clear practical, ethical and philosophical elements to the increasing implementation of technology within financial services and in particular, the financial advice markets. Our aim was to educate and inform around both the threats and challenges, in sufficient depth that anyone reading one, two or all three articles would come away enlightened and able to take that knowledge and use it in their now and future business plans. Creating informative articles which met CPD accreditation criteria we felt would provide that depth of information in a format that was both accessible and useful to the industry participants wanting to learn more.