19 August 2017
Mohit Joshi

Innovations in Fintech

Mohit Joshi - Infosys

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AI in Banking - Robo Advisors and beyond

16 December 2016  |  21864 views  |  2

Technology has changed the very psychology of money and the way we perceive it and artificial intelligence promises to further the ease of doing business for economies across the globe. The great recession left people unsure and with a lower level of trust in banks. The need for secure systems and solid investment plans however, continues to be as great as ever and technology solutions are needed. Technology-backed advisors have now come into the picture and are expected to manage $2 trillion in Assets by 2020. The arrival of Robo-advisors…

Why the shift?

The market is ripe for disruption and FinTech firms are set to take the lead in this change to cater to the changing customer preferences. In 2015, robo-advisors managed less than $20 billion in assets in the US – this number is set to increase manifold. Robo-advisors look set to manage about 17% of total assets in next 6 years with a Compound Annual Growth Rate of 120%.

Financial Investment Advisors (FIAs) are expensive and most often beyond the reach of younger, lower net worth individuals. Millennials prefer better technologies, easy and ‘branchless’ 24/7 communication with advisors and most banks cannot provide this. It’s not just the low barriers of entry and low fees that entice millennials, but the very fact that technology is more trusted than bankers, hence necessitating digital asset management services as a priority in banks. Compared to traditional wealth managers, robo advisors gain their competitive advantage with all mobile, all-time service options. And with over 58% of millennials in the US vouching for the DIY financial research mode, robo-advisors are quickly filling in the void.

For clients with more complex investment decisions, the hybrid robo-advsiors are gaining traction.  A go-between, hybrid robo-advisors couple computerized services with hand-holding from human advisors. But it’s not just millennials who are interested. When investment pros were quizzed by CFA institute, 70% expressed that new-age tools like robo-advisors will have a positive effect on mass affluent investors and 41% think it could even benefit high net worth people. The feature of robo-advisors that entice high net worth individuals is the 24/7 monitoring of portfolios and features like tax-loss harvesting.

Robo-advisors is not limited to DIY investment candidates - full service advisors and discount brokers can use robo-advice to push further into advice delivery and at the same time leverage their traditional direct engagement model. In the future, robo-advice capabilities are set to expand coverage across asset classes to include alternative investments such as hedge funds and real estate.

The future

The adoption of Robo- advisory has significant implications on the way present digital systems interact with customers. The systems have to evolve significantly to ensure that the customer journeys are smooth and intuitive. The Robo-advisor needs to learn, thus adoption of artificial intelligence is essential to build scale and depth. The questions regarding security, liability and scalability are critical, so credible systems and processes need to be built to ensure trust and adoption. The algorithms need to be robust to take market contingencies into account – in the event of a severe market downturn or a flash crash, investors need to be assured that their assets are safe.

As artificial intelligence and automation takes on the centre stage in banking, taking advice on wealth management from a machine is just the beginning in the relentless march from atoms to bits.

TagsTrade executionTransaction banking

Comments: (2)

Michal S.J.
Michal S.J. - Empirica S.A. - Wrocław | 17 December, 2016, 11:34

Good points on robo adice. I made some comments from the robo panel at Sibos conference

http://empirica-software.com/about-robo-advisors-at-sibos-2016/

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 17 December, 2016, 12:50

Nice article. Ever since I discovered ICICIdirect, e*trade and other e-trading platforms in circa 2000, I haven't spoken to a single human broker. I don't have any personal experience with private wealth management - sigh:( - but I remember reading about this British celebrity who had a bank balance of GBP 25M + and still got bad service from his bank's private wealth advisor. It's not hard to believe the predictions of the rise of robo-advisors.

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job title President, Financial Services
location London
member since 2016
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Mohit Joshi heads up the Financial Services practice at Infosys. With over 18 years of professional experience working across the US, India, Mexico, and Europe, his area of expertise lies in the inter...

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