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Chris Gilchrist: Software can’t replace the human touch

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The current phase of technology is all about algorithms. Dirt-cheap computing power and the ability to put it in your hand, on your wrist or in your spectacles means we can have easy access not only to data but to solutions.

Humans are great data-filterers – our efficiency-survival behaviour is built on the ability to ignore vast amounts of irrelevant information. What we want are solutions that eliminate the need to pay attention to data, let alone sift, analyse and compute it.

These functions are disappearing into human history, and into the algorithms of our governing applications. I say governing, because eventually they will become default settings, just like the rules of thumb we used to avoid being eaten on the African plains a million years ago. 

In one sense, financial planning lends itself well to algorithms because most of the specific aspects, such as deciding what type of protection and how much is needed, can be condensed to rule sets. 

Likewise, it is not too difficult to design a questionnaire that divides people into five groups that correspond roughly to the level of risk they appear to be able to tolerate, although only a sharp decline in investment values will show whether they can in fact tolerate it.

But as serious financial planners should already know, the whole is greater than the sum of the parts. A financial plan assembled by applying rule sets to each aspect separately will not be a plan at all. 

Software can finesse this to some extent but the human brain is still far better at dealing with a problem with multiple dimensions than software built on a limited rule set.

It is intuitive for an adviser to hold in their head multiple rules of the type: “If X and Y don’t work then ignore rule A and apply rule B unless you have already chosen rule D in relation to F.” Put too many of these into software and it crashes.

Such rules arise from experience, partly because of the multiple conditionality of the application of the rules – like those used by the medieval cathedral builders, which were passed down verbally in their guilds and never codified in texts. 

For example, if you have looked at enough share portfolios, you can tell the difference between one created by an experienced investor and one created by a slavish rule-follower. As Fidelity founder Ned Johnson used to say, creating a portfolio is more like painting than calculating.

Although software and consumer-facing platforms will continue to deliver increasingly smarter guided advice propositions, they will not ever be a substitute for financial planners. And if it is going to takehours and hours to get a system to deliver what looks like a sensible answer, many will prefer to use a human.

Of course, if the regulators permit system providers to escape any liability for consumer outcomes from such guided advice then we do not have a level playing field, but even this should not be too much of a disadvantage. 

Financial planners will simply tell people that those who use guided systems have no redress against anyone for the mistakes they make. 

When real money is at stake, that will no doubt be enough to bring the right people to our doors.

Chris Gilchrist is director of Fiveways Financial Planning, a contributing author to Taxbriefs Advantage and edits The IRS Report

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. While I accept that certain individuals prefer personal interaction to that provisioned by an automated process, I have to take issue with the idea that the human brain is a more efficient rules engine than that offered by modern computing. If software crashes because of the rules built into it, then it is badly designed software. Self driving cars, auto land and take off on commercial planes, modern mapping technology and medical diagnostics should serve as perfect evidence of this.

  2. goodness gracious 31st March 2014 at 3:08 pm

    Chris, absolutely correct! We are in the process of being driven down the same path regardless of who gives advice, and that is not what humans are all about. I remember one of the FSA boffins complaining that if someone has certain investment needs, has the same risk profile as well as capacity, then, at least with asset allocation, the recommended portfolio should be the same.
    This philosophy ignores the human element altogether, and it is the human element that is the most important. No two advisers ask the same questions particularly regarding soft facts. What is the client’s real motivation, what family events to they foresee being problems in the future, would they spend their money on their children if they came running to the bank of mum and dad? What investments do they have a prejudice against, what have they heard? What are they frightened about? It all goes into the brain computer and you make a decision on the type of tax wrapper, the capability of understanding a platform solution with maybe 14 investments on it, or maybe they will be better off to have an outsourced solution, either a multi asset fund(s) or a DFM. Active or passive? Investment trusts as well as funds perhaps, it varies with every client and leads to further discussions before you finalise your recommendation. Do I do a better job than others? Better than some certainly but there are always those better than me. Do I rely on a risk score that loads of firms publish from DT? No, their scores are very crude and fail to distinguish between risk of the underlying investments and the breadth and diversity of the fund managers remit. To ascertain fund risk you need to x ray the investment, understand some of the actual philosophy behind the fund, then make a judgement. Building a portfolio is not a mathematical problem, but more of an art form. A computer could do the work, but the inputting would take longer than any interview, so good old brain power, added to long term experience, training and an understanding about how markets work is what is needed.
    Why is it that UK equity markets do better when England wins the ashes? Can a computer input that into its risk profiles returns?

  3. Reading the original article, and Mr Gracious’s reply, anyone would think we were back in the seventies. Do these people really believe that a human brain can process data faster than a computer? Today’s financial planning tools are becoming more and more sophisticated. It can only be a short time until someone produces a tool that will ask the same questions as a human FA, and based on the responses, will go to the next most appropriate question set. There is no good reason why a computer can’t ask the same questions as an adviser. The world of financial advice is, after all, based entirely around the movement of data. A computer system would have much faster access to real-time data and be able to process and analyse this data much faster than a human. Not only that, but it could service many customers simultaneously, without needing personal visits.
    Certainly, many individuals may still prefer a human touch, and today’s systems may still be immature, but the time is coming soon when tools will exist that can analyse a customer’s lifestyle, requirements, financial needs, personal circumstances and any other questions that an FA could ask; compare the results with up-to-the-minute financial data and possibly have access to 3rd party data about the individual (we call this Big Data), then recommend an investment portfolio. Not only that, but allow the customer to change answers and produce what-if scenarios, much faster than a human, and for many clients at the same time.
    Two final points for the anti-software brigade. If you can think of a question, then you can programme it into a tool. And if you can come up with a portfolio based on the answers to your questions, then a computer can be programmed to make the same decision logic; and faster. Anyone who says that creating a portfolio is an art form is talking Jackson Pollocks.

  4. @adam jones

    I’ve got to say Adam…. it’s only Monday and my head is spinning having read the last two comments, plus Chris’s regular thought provoking contribution.

    I now know why you keep collapsing the scrum!

    Its a human ‘thing’ and not as simple as just pushing straight, whilst keeping your hips and shoulders level, properly binding on the oppositions shirt and screaming in his ear!!! Ignoring the ref can often make for a much more intersting meeting (match!) and a better outcome.

  5. Distribution Technology 2nd April 2014 at 5:08 pm

    Interesting debate, however just for clarity DT do work with the fund groups to understand the actual philosophy behind each fund as a part of its risk profiling service. This includes looking at past and current x-rays and is a process that is carried out on a quarterly basis.

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