“The future of financial advising is algorithms and humans”
THE Six Million Dollar Man is an American science fiction and action television series, running from 1973 to 1978. The first time I heard the word ‘Bionic Man’ was when I was a kid. The main character (astronaut Steve Austin) is horrendously injured in a test flight accident.
He was a man “barely alive” but, as the title sequence explained, science could come to his rescue. “Gentlemen”, we can rebuild him. We have the technology.
We have the capability to make the world’s first bionic man. Steve Austin will be that man. Better than he was before. Better, stronger, faster.”
Robo advisor is an investment advice which is provided by an automated investment platform that handles the development and maintenance of an investment portfolio. These computer programmes use algorithms to create smart, diversified investment plans.
They’re easy to use, inexpensive and increasingly popular. Just as technology helps us to hail a taxi, it is now bringing investment to the masses.
But good financial advice depends on things that robots can overlook like intellectual capital, lack of planning, addressing of complex life events, sophisticated tax planning and understanding of human wisdom.
I would argue that the future will require a hybrid approach, part human and partly robot. I feel confident predicting that while Robo advisors are on the rise, the alpha advisor (human advisor) is here to stay. In other words we are looking for a bionic advisor.
What is a bionic advisor? This is the combination of human and robot. Unlike a robo advisor which is a fully automated solution in which technology takes the place of an alpha advisor, a bionic advisor makes smart use of technology to enhance client relationships.
The bionic advisor will typically interact with the client via a portal, use algorithms to test out strategies, and let technology help with the routine tasks, like producing reports. Now, let’s discuss the advantages of bionic advisor:
More inclusive
Bionic advisors have the ability to handle a more complexed financial situation and assist individuals more in a holistic way than simply investing on portfolios. Bionic advisor will help individuals develop a comprehensive financial plan using technology and the human connection.
The bionic advisor gets to know you personally, helps you develop and implement a plan that uses all of the financial tools to reach specific personal goals. Bionic Advisor uses technology as a tool that helps you implement and manage your investment portfolio, risk, tax, estate planning and others.
The real difference is that no “Robo” can truly understand what makes every individual’s situation unique, but bionic advisor with the combination of “Robo” can eliminate the flaws in both worlds by leveraging the strengths from the advisor and robo.
No distributor biasness
Typically, we worry that investment advisors, unit trust consultants or relationship managers are getting us into investments which they stand to profit or to reach their sales target.
As they are paid a commission, they benefit no matter what they suggest. Since they represent certain financial institutions, it will be difficult for them to provide unbiased advice.
With bionic advisor, where human combine with Robo, it provides automated advising based on mathematical formulas. This helps you avoid that bias and make investments or trades based on solid proof and data.
Lower service charges and annual management fee
Bionic advisors tend to have a fee-based model for financial advice and with lower service charges for investment advice by robo advisor.
No initial charges, no withdrawal charges, no account closure fee and so on.
Most of the robo advisor firms charge around 0.2 per cent to 0.8 per cent annual management fee with no other hidden fees. Usually, they use exchange-traded funds (ETFs), which have low fees and are tax efficient.
As technological innovations continue to revamp the way wealth management is conducted, the human element of financial advice is more important than ever.
We demand an experience as convenient and advanced as the robo advice platforms, but we also look to advisors who add value beyond the numbers and calculations, create a deep connection and consider both rational and emotional decision.
Bionic advisory here can enhance the experience by providing human touch with a range of machine learning-based insights into the market that can then be presented, ensuring better rounded and data driven advisory.
Even with all the advancements in technology, the importance of human experience can never be forgotten in the world of financial advisory. There are things about our understanding and the way we work that machines can never replace.
Gunaseelan Kannan, CFP, a Financial Adviser Representative by Bank Negara Malaysia and a licensed financial planner by Securities Commission (CMSRL/B4198/2013), is currently pursuing his PhD research on financial planning and financial technology. He also lectures on accounting, finance and business fields in Asia Pacific University of Technology and Innovation (APU). He is the Winner of Malaysian Financial Planner of the Year 2020, from Financial Planning Association of Malaysia. He can be reached at [email protected]