Financial Robot Advisor
Pfäffikon SZ, Switzerland – The world around you is changing at a rapid pace due to various technological revolutions. It seems this process will continue to accelerate the coming decades, which can have substantial effects on your day to day life. The safe stable job is no longer self-evident. What’s more, complete professions will be wiped out, which will only add to the uncertainty. The financial sector is not a separate island and is listed in the top ten professions that are threatened by robotisation.
Research
Some asset managers invest a lot of money in the analysis of fund managers to figure out how consistent their investment policies are. In my previous column I pointed you to the extinction of the buy and hold investor. Fast and short-term profits would then be the key to more assets under management. This opportunistic approach has blown over from the world of sports. Nowadays asset managers are increasingly involved with crunching data, which can be decisive in the appointment of a fund manager.
Robot
The next step in the digitalisation of wealth management is the robot, or FinTech. The deflationary suction power of several technological developments continues to take shape. A robot, according to many enthusiasts, has several advantages. After all a robot can be set up in a way so that excesses in investment profiles, margin requirements, incurred losses etc. can be limited to a minimum and scandals can become a thing of the past. This conclusion, in my view, is premature. Where VW toyed around with its software, robots are able to fool regulators by responding differently once they’re under control. Digital asset management is closer than you think. Betterment and Wealthfront are good examples where the robot is at your service. But also common names such as Vanguard and Charles Schwab are making advances in this direction. Sometimes curious advice is given by the robot which is the case for instance at Wealthfront regarding Tax-Loss Harvesting.
Free Lunch
The technological advancements cannot be stopped. This is a positive thing because these advancements ultimately contribute to better living conditions for future generations. Still, I’m very curious how a robot will survive a market crash. When many robots are programmed in a similar fashion it can enhance the snowball effect associated with a drop in the markets, as they need to stay within their parameters. This offers the human investor unprecedented possibilities. This has no bearing on the case for creating a robot in a world where seemingly more and more services and products are offered for free. In which case you are the goal and the product. There is no such thing as a free lunch.
Asset managers, through various methods, try to figure out what the best investments are for their clients – and that’s their right. Studying the data can definitely assist to that end but it doesn’t filter everything. The robot, in the meantime, shall need to prove itself as a competent investor, but destructive behavior can, in some cases, definitely be curbed. However, the point at which a robot is able to console an elderly investor after a market crash is still far away.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above mentioned shares and has no intention of doing so in the next 72 hours.
