“Robo-advice is a bit of a misnomer.”
As Robert noted, we are seeing a shift from robo-rebalancing into things that actually look more like holistic financial planning. Over the short term, we will see more hybridized offerings that will be the market winners. It will be a huge job to go from the group of firms we call robo-advisers, which are offering a digital investment experience online today, to artificial intelligence (AI).
In addition, there are numerous consumers with sophisticated financial lives and a need for professional financial advice. Thus, robo-solutions will not replace traditional wealth-management services.
“At IBM, we say AI means augmented intelligence.”
IBM is not trying to replace human advisors with computer programs, but is entering into a very new area of computing that entails assisting humans. This area is newer and more subjective than others.
According to Robert, we won’t see a machine that can look across the table at a client and answer questions like: “Can I afford to keep mom in the house in the Adirondacks that she loves so much?” Machines don’t do that today; perhaps some day they will, but not in a timeframe that most advisors who are providing that level of advice need to be overly concerned about. That said, we are seeing digital firms moving upmarket and being able to leverage some of these technical capabilities to offer higher levels of service that will result in fee compression and erode the incumbency at the margins.
“Financial services is still a business that is sold, not bought.”
At the same time, some of the more tech-savvy consumers and users come aboard, but the cost of client acquisition for an upstart digital channel is still very high because of the fact that financial services have to be sold.
Robert emphasizes that we don’t wake up in the morning and rebalance our portfolio immediately. This is another reason why we’ve seen some of the incumbents that have adopted robo as part of their offerings, or hybridized it with some of their other products, becoming the most successful in the market. They have a captive set of clients who are already among their followers, and can differentiate by offering what the channels are more comfortable in operating with.
At IBM, technology like a Watson chatbot is married to the digital offering. This is one way in which digital firms can integrate AI to provide their customers basic financial advice.
There are still some incredibly useful things that clients can do right now to leverage different machine learning techniques that fit into this world of AI. Right now, the wealth management industry is very focused on things that drive top-line revenue; this includes acquisition, retention, and deepening, which can mean different things if the client is in a more of a fee-based fiduciary world opposing to a commission product realm.
But that includes the ability to predict and detect individual life and financial events to time service and offerings to money emotion; to anticipate service needs, such as predicting when clients are going to leave; to perform advanced segmentation and clustering of focus of business at both kinds of a sales and an individual advisor levels.
Carrying out tasks such as validating investment in more of an equity research-type area is a goal that includes surveilling suspicious trading core communications and understanding the impact of news and certain events on a portfolio. This means taking real-world events and driving them into the scenario analysis and optimization necessary to start a dialogue with human beings and understand their strategy.