Does the financial industry need people anymore?
From the surveys that I have seen on delivering superior service experience in the financial industry, our sales and service people can be the strongest evidence of this. But they can also be the weakest link.
Customers are increasingly disenchanted by how impersonal banking can be. Their common grouse is that bankers tend to put their own interests before those of their clients.
However true that may be, it has given the opportunity for technology to prove that it can do a better job. There is a rising concern globally that not enough people receive the financial advice they need at affordable prices.
In Malaysia, getting a relationship manager to work with your portfolio requires that you first seed your account with RM200,000 to RM500,000, depending on the bank you choose. This by no means guarantees the quality of advice that you receive.
Humans come hardwired with cognitive biases that often result in suboptimal financial decisions. We love to agree with people who agree with us. We put a great deal of weight on previous events, believing that they somehow influence future outcomes, and overlook other potentially important information. And we believe that we are more knowledgeable and skilful than we actually are.
Relationship managers are just as human as their clients and subject to such biases. Throw in factors such as financial incentives and it is easy to understand why we are seeing a strong case for fully automated investment services.
Relying on computers to make trades is not new. There are thousands of hedge funds out there making trades with the help of computer models. This typically involves “quants”, or financial engineers who build huge statistical quantitative models that are rule-based and dictate the trading or investment strategy of the fund.
The thing about these quant models is that they can be somewhat static and, as markets change, they may not work as well as they have in the past. It is what I call driving forward with your rear-view mirror.
Where progress has been made in recent years is that funds have moved towards true machine learning — artificial intelligence (AI) systems can distil large amounts of data and improve themselves. Imagine a continuous loop where systems automatically recognise changes in market trends and patterns and adapt their models accordingly.
Where things have become even more futuristic is the use of AI to run companies without any human input. In April last year, the investing community was in a flurry about something called the DAO — an investment company with no board, no CEO and not a single human employee.
The decentralised autonomous organisation was a venture capital fund. In place of analysts and fund managers, there was only code. Clearly, this captured the fascination of investors as the DAO set the record for the largest crowdfunding campaign in history by raising US$150 million.
If computers can control investment companies, does this mark the end of human financial experts? The greatest contribution technology can make for the retail industry is not to replace human financial managers. Rather, it is to create access to the kind of financial advice that could make a material difference in their lives. As interesting a concept as the DAO is, it is a niche concept supported by internet currency.
AI can play a role in providing real-time, contextual and meaningful feedback on our money habits, especially when we are spending our hard-earned income. Can it serve as our inner voice of reason before we succumb to consumerism? Can it be our personal financial assistant, reminding us about things like we have some miles earned on our credit card, which we can use for an upgrade on a much-needed holiday? Can it remind us of things like my child has spent her allowance way faster than she should have (and that it is time to have that heart-to-heart talk about budgeting) and suggest relevant articles?
Will we see the day when an app that can grab all the important information around us the way a Fitbit does for runners who want to improve their performance? With the current pace of technology, I think we are not too far away from seeing this become a reality.
Ong Shi Jie (CJ) is head of integrated marketing and analytics at OCBC Bank (M) Bhd