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Technology in investment management – friend or foe?

While big data and machine learning are helping provide better investment insights, robots are changing how wealth advisory services are delivered.

Research predicts that digital payments in India will exceed USD 500 billion by 2020, up from USD 50 billion in 2016. It’s just one way in which fintech is changing the face of the financial services industry. Fintech – the technological innovations in the design and delivery of financial services and products – is revolutionising customer expectations. Emerging technologies such as Artificial Intelligence (AI), big data and analytics, blockchain, cloud, Internet of Things (IoT), and robotics are disrupting traditional finance.

AI and machine-learning are transforming customer experience with personalised services and improvements in back-office efficiencies. Banks use big data and analytics in their fraud, risk management, and regulatory compliance. IoT is revolutionising insurance. But its growth is conservative in comparison to big data, cloud and machine learning used in payments and alternative lending. Big data and machine learning are spotting trends and providing better investment insights. Robots are venturing into investment and changing how wealth advisory services are delivered.

The effect of machines on investment management professionals is a pressing question.

Digital and emerging technologies will have profound implications for the field of finance, but they are still nascent. Machines still require human direction to carry out tasks. Robo-advisors cannot operate independently of their human counterparts because their algorithms require a longer learning curve. Blockchain may redefine how financial institutions operate, but it is not yet mature and will need to overcome hurdles if a sustainable business model with regulatory approval is to be achieved. AI does improve customer service, but only in unison with human professionals.

The real challenge is finding the right talent pool to complement the agility of the technologies. Investment management firms must compete with other industries using disruptive technologies to attract the best people. Investment teams and technical teams will need to be integrated to create checks and balances on the models and processes. Proper integration is a counter to the potential lack of transparency and interpretability in these models’ decision-making processes.

Fintech’s prominence is shaping the investment industry’s evolution. The CFA Institute is engaging with regulators and policymakers to explore ways to support fintech’s investor protection standards. To succeed in the new-age investment management industry, advisors need new skills, more importantly soft skills. A study found that organisations retooling for the future are instilling cultures of ethical decision making, to complement specialised financial analysis and sophisticated IT skills. The CFA Institute has also integrated big data, AI, and robo-advisory into its CFA® Program curriculum.

The human element is still vital even as firms harness fintech capabilities to survive in an era of low-latency and algorithmic, high-frequency trading. Technology will enhance advisors and investors will seek out institutions employing the right human-machine mix. Increased competition in the market will reduce fees and improve quality of service for investors. Technology will create new business models and revenue streams for financial institutions. The investment industry and its customers can both be winners when the blend is in equilibrium.





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