FinTech – Will Your Future Financial Adviser Be A Robot?

Digital Disruption

The concept of digital disruption seems to be everywhere these days.  But what exactly is meant by the disruptive industry, and why is digital playing such an imperative role?  Really, it is all about change.

Let us begin by going back to basics.  The definition for disruption is a problem that interrupts an activity or process.  The definition of digital, in this case, is anything relating to the use of computer technology.  Putting these together, we understand digital disruption to be referring to changes enabled by technology, which disturb traditional ways of doing business.

A perfect depiction of digital disruption is the rise of the collaborative economy, personified by companies like Uber and Airbnb, who are cutting out the middlemen, and enabling peer-to-peer transactions.  Their following of a consumer-centric model has revolutionised both their respective industries.

Most business leaders recognise this; however, the problem is that the majority of them have no idea how fast digital is going to disrupt their whole industry, let alone their business processes.  Change is simply inevitable.  It is a common strategy to simply focus on keeping up with disruption; however, this can be a detrimental strategy to follow, as many industries find themselves completely disrupted, and out of business, before even realising that much has changed.  A better approach would be to have a complete shift in focus, to really understand digital disruption, and to fully consider potential long and short-term future disruption before it happens.  This would allow such an organisation to lead the way, or at least ‘ride the wave’ and ensure more efficient adapting to evolving technologies.

Now, are all industries being disrupted at the same rate? – Not at all.  Despite the fact that several industries have already evolved almost beyond recognition, there are still some that have had minimal disruption.  One of these industries is banking & finance.

Banking & finance has remained very resistant to change, and many believe that it will remain that way for the foreseeable future – not the most realistic belief to say the least.  Again, change is inevitable.  In fact, there has been a recent emergence of technologies ready to, if not already doing so, disrupt banking & finance.  This wave is called ‘FinTech’.

What is FinTech?

Financial technology, also known as FinTech, is an economic industry composed of companies that use technology to make financial services more efficient.  There is a whole range of FinTech start-ups aiming to disrupt several different areas in this industry, but we are going to focus on one particular area: financial advice.

Financial Advisers Vs Robo-Advisers

A financial adviser is a professional who helps clients manage their finances by advising on planning and investments.  This is a prolific and well-respected industry; however, even the future of this area has recently come into question, with some even labelling it as a ‘dying industry’ and many even saying, ‘it’s obviously going to be taken over by robots.’  Is this as much of a dramatic conspiracy as it initially seems?

The scary, and also exciting, reality is, that it’s not.  This is actually a very real possibility through a particular emerging avenue: Robo-advisers.  A robo-adviser is an online wealth management service that provides automated financial advice without any need for human interaction.  The use of cognitive analytics allows these services to advise algorithm-based decisions that may be seen as simply irrefutable.

It is well known that some, if not all, of the biggest mistakes in investing, is the inevitable subjective decisions that people have no choice but to make.  Every thought that runs through our heads, and every decision we make, is somewhat influenced by our own external circumstances.  If an algorithm can factor this aspect out of investing, why would we all not listen?  It simply makes sense.

The Reality

After much research, and several discussions with friends and colleagues, I conclude, that on the scale of 100% human financial advisers, and 100% robotic services, reality falls somewhere in the middle, (as it always does).  Despite all the benefits of an investor using a robo-adviser, there is still one thing that can never be trumped: trust.  When you are investing your money, and making decisions about your future, you need to trust the party giving you advice.  The simple matter is, that people will never completely trust a computer.  Building a personal relationship with your adviser will always retain its own charm and appeal.

In addition, as much as cognitive analytics are drastically improving, computers simply don’t think. What does this imply?  Simply, it implies that humans can be more resourceful.  Computers have one job, and albeit they perform that job remarkably well, they will never be able to draw on things like experience, and the personal motivations of people.  These certainly are beneficial aspects when it comes to giving and receiving financial advice.

Of course, at the exponential rate that technology and cognitive analytics are advancing, it may very well be possible that robo-advisers will completely take over the industry; however, not for a while yet!  Again, I strongly believe there will be an integrated model, where robo-advisers are assigned to smaller investments, or those looking for less risk, and retaining traditional advisers for high profile investments.

Whatever the future of FinTech holds, one thing is for certain: these are extraordinarily exciting times for both business leaders and consumers.