Artificial intelligence investment management is on its way, will financial advisors follow?
18-Mar-2015 •Dhirendra Kumar
Bridgewater, an American hedge fund that's the world's largest, has set up an artificial intelligence team that is working to create a fund management system. According to news reports, the team will create trading algorithms that make predictions based on historical data and statistical probabilities, and will learn as markets change and adapt to new information. Of course, there's a lot of algorithmic trading in all markets. However, Bridgewater, which manages $160 billion, is the by far the largest fund to have started to move in this direction. In the US, many asset managers consider it very likely that over the next few years, artificial intelligence systems will become the norm rather than the exception in fund management.
This brings to mind recent statements by such big names in science and technology like Elon Musk, Bill Gates and Stephen Hawking warning about the disruptive potential about the kind of artificial intelligence that is now appearing on the horizon.
Can software replace human beings in other personal finance related tasks? I suspect it can. The role of the personal financial advisor is one that comes to mind. An overwhelming number of savers do not have access to good financial advice. Those that do often get aggressive sales pitches disguised as advice. Directly or indirectly, the cost of such advice is quite high. Real financial advice from a consultant who is committed to the savers' interest is rare, and would probably be constrained by supply and cost. And yet, having observed this entire activity for long years, I feel it does lend itself to automation. The process will have to go well beyond some trivial rules of thumb but it's not hard to imagine a software system that can give genuine financial advice that is focussed on the savers' interests. It could well be the only way to deliver good quality personalised advice to a large number of people at an affordable cost.