Artificial Intelligence is changing the game for Robo-Advisory services

In computer science, artificial intelligence (AI), alternatively known as machine intelligence, is intelligence demonstrated by machines. In layman terms, the term ‘AI’ is often used to describe machines (or computers) that mimic cognitive functions that humans associate with the human mind, such as learning and problem solving.

AI has been used in multiple industries to transform businesses and influence outcomes. These include healthcare, security and automotive, just to name a few. One of those areas where AI has accelerated evolution is the robo-advisory service, which involves computers having extensive financial big data to analyse.

Robo-advisors are basically financial advisers that provide financial advice or investment management online with moderate to minimal human intervention. They work using algorithms to automatically perform investment decisions or tasks which were mostly done by human advisors.

Basically, robo-advisors will collate and combine customers’ information such as their financial goals, risk tolerances, timeframes, with the right asset allocation that meets the customer’s needs. Algorithms and tools such as machine learning models will be used to create the best fit for the customer. During this process, they will also take alternative steps such as rebalancing the portfolio if needed. This automatically increases their efficiency while taking decisions at the right time for the portfolio.

Over the past five years, robo-advisors have been increasing in popularity in Singapore as both banks and financial institutions offer their products and services in this field. Some of these include Syfe, Stashaway, DBS’s digiPortfolio and OCBC’s RoboInvest. Fees and minimum investment amounts vary across the board so it is best to check their websites for the latest information.

The implementation of AI in the traditional financial advisory field has changed work for human advisors, with one of the most obvious being time saved for human advisors. AI’s deep learning capabilities has freed up time which advisors traditionally spent on rote or mundane monitoring and administrative tasks. However, they can set alerts in the AI-based system so that it can alert them should urgent action be required, such as when allocations fall outside of certain parameters for the specific clients.

Another distinct edge that AI has over its human counterparts would be the ability to process big data swiftly, allowing robo-advisors to adapt to changing market conditions and consumer behaviour much quicker in order to make better investment decisions. This leads to increased efficiency and in most cases, more accurate results and an edge over passive strategies. This is due to the analysis of vast quantities of historical and financial data will uncover key opportunities that traditional analysis would otherwise overlook.

As of now, enterprises that offer robo-advisory services may not leave out the human component completely, but it seems the adoption of artificial intelligence is enhancing the existing platforms and they will be better equipped to offer clients alternative products and services to choose from over time.

Credit to Mike MacKenzie for the image.

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