How Artificial Intelligence Will Reinvent Investment Advising

Written by: Michel Barakat

Machine Learning, Big Data, Artificial Intelligence (AI). Three buzzwords you have likely seen in the media lately. It is challenging to surf a news website and not read about the impact of AI on the economy and the applications it will enable. Is all the fuss well founded? The answer is yes and this new digital frontier will affect your business, as an investment advisor, more than you think.

A Brief Overview

Before digging into the topic, let’s clarify a few keywords.

Artificial Intelligence is an umbrella term to refer to any process, computerized or other, that replicates human intelligence.

Machine Learning refers to software algorithms (an example is deep learning) which allow computers to implement artificial intelligence.

Big Data is an umbrella term which refers to large amounts of data, usually cloud-hosted, which because of their sheer quantity are statistically significant enough to allow you to generate valuable insights.

Let’s consider a simple example, your bank uses predictive analytics tools (“Machine Learning”) to determine whether or not to approve your car loan ( “Artificial Intelligence”, usually performed by a human analyst) using massive amounts of loan default data they gathered over the years (“Big Data”).

Research in Machine Learning has been going on for several decades. Only over the past two years have the software algorithms gone mainstream and companies outside the tech industry started to realize the business values of using these tools to generate actionable insights. Low estimates place revenues generated from AI at 2T USD by 2020, high estimates at more than 10T USD. That pretty much explains why AI is such a popular topic today.

Related: Why Do Clients Fail to Understand Option Investments?

Applications in Investment Management

AI solves many problems which traditionally relied on complex analysis and years of industry experience. Trading desks at large investment banks, which tend to invest early on in cutting edge technology, have been relying on AI for years to generate insights which allow them to predict retail investors behavior, stock movements based on trading pattern and company sentiment using mentions on social media. Within the scope of investment management, the applications are now maturing and we are observing trends developing in three fields: customer service, compliance and investment research.

24/7 Customer Support

Chat bots rely on AI technology to mimic the services provided by a support desk. Several banks have already implemented these tools on their retail investing platform to improve customer service. Chat bots are implemented in online chat applications. They engage clients to answer frequently asked questions before any of the queries reach a human support analyst. The conversation flow sounds so natural that the client does not realize he is chatting with a computer. The technology allows you to better service your clients outside working hours and reduce response time thus improving customer satisfaction.

Data-driven Compliance

Compliance is another area affected by AI in particular within the scope of Anti-Money Laundering (AML) and Know Your Customer (KYC). The basic idea is that two clients who happen to share similar traits (an example would be income level, marital status, job industry and sport interests) are likely to share the same risk profile. How do you figure out what these traits are? AI tools will not only help you answer that question but also determine the weight each trait carries in determining a client’s risk profile. The technology is not faultless but it provides you solid data-driven insights to better understand who your clients are.

Relevant Investment Products

Investment recommendation is a third area where we have observed large bets placed by banks on Wall Street. How do you determine which investments your clients are interested in? If you succeed in recommending a product which is aligned with both your client’s risk profile and portfolio objectives, you have already fulfilled a large part of the advisory function. This trend could potentially shift your role from pushing investment products to further cultivating the relationship with your clients.

AI For Your Portfolio

Cboe Vest Technologies leverages AI tools to help you find option investments which are relevant for your client’s portfolio. Learn more about how we can help you provide better recommendations to your clients here .