In this article we question the reliance on market research and analysis by the investment industry and advice market. As technology develops, opinion matters less and the facts build the only story we need to listen to.
The reality is that things change. That’s a fact of life. And it’s especially true for technology affecting financial planning in a multitude of different ways. The pace of change is increasing and shows no sign of abating. Today, technology is closely woven into most investors’ financial lives of all age demographics and is both an enabler and a threat, especially to the advisory firms who choose to ignore it.
Increasingly, investment clients are expecting a far better user experience, greater convenience and successful investment outcomes at a much lower price. Financial advice firms need to recognise the potential threats this brings and embrace the opportunities and benefits that investment technology will bring to their business.
Delivering the very best investment experience to clients
All advice firms in the 2020s need to harness this technology in order to boost their clients’ long-term investment performance. At Clever, we partner with many of the UK’s leading advisory firms who want to capitalise on the considerable opportunities technology-powered investment solutions have to offer and help them deliver the very best investment experience to their clients.
In recent years, there have been phenomenal advances in investment technology using robotics and artificial intelligence (AI) to address key pressure points, reduce costs and mitigate investment risks by guiding machine behaviour to solve investment problems in a way that avoids human bias and subjectivity.
Systems that can produce smart results in a variety of situations
Machine learning (or ‘computer learning’) is an offshoot of AI which is focused around the idea that computer algorithms can recognise investment patterns and learn, and as a result continue to improve as more data is acquired. Large amounts of data feed into algorithms in order to detect investment momentum and make inferences that will shape the evolution of new algorithms.
Whereas the broader term ‘AI’ refers to systems that can produce smart results in a variety of situations, machine learning refers to systems that can infer from experience and then adapt to this. As a result, investment technology increasingly uses quantitative systems and complex algorithms to make rational fund switching recommendations.
Lowering initial barriers to entry for many financial advice firms
With investment clients demanding a much more flexible, personalised experience, and with costs continuing to drop, this technology is here to stay. The development of technology-powered investment solutions for financial advisers has not only lowered initial barriers to entry for many firms, but it is also helping overcome other issues being faced by the financial services sector.
MiFID II is just one of the vast pieces of legislation designed to inject greater transparency into investment markets, including regulations that concern reporting and executing trades. Then add to this the wider question over what will happen once the UK officially leaves the EU and the impact of this on the investment industry. All of which further reinforces the importance that advice firms need to embrace technology-powered investment solutions to manage these challenges in a time-saving and cost-effective way.
Justifying fees and providing more robust investment solutions
Advisers are also having to demonstrate and provide more value to their clients, justify fees properly, and provide more robust investment solutions. But when it comes to the investment industry and advice market, the headline numbers really only tell part of the story.
AI and machine learning capabilities now collectively have the capacity to produce more balanced distribution of buy, hold and sell recommendations than human analysts, consistent with them being less subject to behavioural biases and conflicts of interest. Investment clients in turn will increasingly see much more added value in this, rather than being reliant on a human investment analyst making these decisions.
Automation overcomes natural limitations of the human brain
Investment technology also facilitates a greater scale of research production. There are natural limitations to the productivity of the human brain. Automated recommendation revisions rely less on earnings announcements, and more on the large volumes of data released in a firm’s annual reports.
Human investment analysts may be able to conduct research and analyse data, assess the performance of stocks and bonds, analyse profit and loss sheets and companies’ accounts, and make informed recommendations for individuals or a small number of companies, but how effective is that research data if they have to perform this for several thousand different companies?
Experts subject to cognitive distortions affect the quality of the result
Prejudices, false assumptions, the desire to simplify, ignoring contradictions and, of course, the emotional response component will all have an impact on the investment analysis and outcomes. There is no one expert, or even a group of them, that would be able to efficiently process such a high volume of information. And even if this was possible, experts, like all people, are subject to cognitive distortions, which fundamentally affect the quality of the result. AI makes issues like these fully resolvable.
At Clever, we have been challenging traditional investment architectures for the past two decades. Our groundbreaking fund screening technology takes the vagaries of human instinct out of the equation. We help to protect advisers’ businesses and clients’ assets with monthly fund monitoring and remove human emotion, resulting in more rational, less volatile investment outcomes.
Want to obtain more intelligence about your clients’ investment needs?
We’ve developed a robust and repeatable process that will help you adhere to MiFID II guidelines and enable you to keep your clients informed about their investments with a monthly white-labelled email, which means you have more time to focus on your clients’ goals and grow your business. Contact a member of the team for more information on 01244 346343 or email firstname.lastname@example.org. We look forward to hearing from you.