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Finovate day two: Is this what true robo-advice looks like?

The outstanding demonstrations from day two of the Finovate Spring conference in San Jose came from companies who have thrown down the gauntlet to challenge conventional thinking and revealed services that could transform major parts of the financial services industry in a  few years. Almost all of them focused on using non-traditional forms of data to improve customer services, outcomes and achieve greater profitability.

From advisers’ perspective, Hedgeable AI was probably the most controversial. Co-founder Matt Kane predicted within a few years, we will not need advisers to carry out most of the tasks they do currently.

He went further, saying his artificial intelligence bot will be capable of doing anything an adviser can do.

Speaking to chief technology officer Sid Sharma after the show, he argued while advisers are needed for the more complicated stuff, they are not required for “things like to checking to see if you are on target to meet your goals or selecting portfolios”. He said: “Trust needs to be established – but who said it had to be by a human?” At this point I suspect there will be some readers of this column on the verge of cardiac arrest.

While I eventually see financial planning and advice as services that will be fully automated, I believe that point is at least a 15 years away. But when you see what Hedgeable have achieved, that timeline does become questionable.

In the demo Hedgeable featured its artificial intelligence bot, known as “Katana”. It identified the maximum level of contribution a person could make to an individual retirement account and the funds which can be used be make those contributions.

Katana can also present information to consumers in the event of a market downturn, and use personal financial management aggregation to examine an individual’s monthly spending and identify savings.

Another hugely impressive presentation came from Alpha Rank chief executive Brian Lay, whose firm creates social graphs to help businesses understand the key influencers among their customers. Apparently until 2012 Facebook disclosed this information with third parties but it has since been decided this is too valuable to share.

Understanding these social graphics allows businesses to predict when customers might be likely to leave and take preventative action. The same techniques have been used effectively in the mobile phone industry, with T-Mobile reducing its attrition rates by 50 per cent in three months.

In financial services the company will take two to three years of banking data, analyse it and provide maps back to their clients so the firm can understand who the crucial influencers are who are driving behaviour among other customers.

The service does not yet currently use social media data but this is seen as a natural further development.

One company already making very creative use of social media data is Neener Analytics. It is focused on improving lenders’ underwriting decisions but can also be used to improve insurance risk decisions. In each instance services are intended to complement rather than replace existing processes.

The service is  built around the data that can be extracted by consumers’ giving permission to access their Facebook, Linkedin and Twitter accounts. It can be particularly valuable when trying to assess people who have a poor credit score simply because they have not previously used much credit. One major attraction is the customer only has to give a single click consent to access this data and the service conducts the rest of the analysis.

While the company is prioritising credit and insurance risk I cannot help think how the service could be used to conduct attitude to risk assessments. This might be particularly useful in areas such as auto-enrolment where savers will have had little experience of risk profiling and may find a single click approach more appealing . Current risk profiling techniques do leave much to be desired and are an area where an improved customer experience might be very valuable.

Notably, both Hedgeable AI and Alpha Rank won prestigious “best in show” awards.

An extended version of this summary can be found here

Ian McKenna is director of Finance & Technology Research Centre

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. So tell me – who carries the can if there is a complaint. What sort of conversation can you have with a robot. “Tell me R2D2 what do you think the effect will be of Trump’s Tax review?” “Do you think I should invest in the UK now they are committed to Brexit?” Can we have a brief discussion on these topics?

    As I have oft repeated:

    Robo advice is to financial services what a rubber dolly is to sex. It might work, is certainly cheaper, but it definitely isn’t the real thing. Would you really want to try it?

    • Would you want to try it? Yes if your part of the vast majority of the UK that only have a couple of grand to actually invest. Robo advice is not for the ‘typical’ advised client, its for the masses.

  2. Hello Harry,

    I thought we be hearing from you on this one. How is the candlemaking industry?

    In answer to your question regulatory responsibility and liability for any compensation rests with the firm giving the advice, just like any other form of advice.

    As to the ability to have intelligent conversations with machines these capabilities grow every day. As you’ll see AI is increasingly being seen as a major asset to use in investment decisions e.g.
    https://www.theguardian.com/technology/2016/dec/22/bridgewater-associates-ai-artificial-intelligence-management

    As to what rubber doll sex feels like I can’t comment having never tried it. If you are saying that you have experience in that area I would have to bow to your greater knowledge on that subject.

    If you ever want to have a sensible conversation on the future of advice happy to engage.

    • James Hurdman 4th May 2017 at 2:31 pm

      I’ve just read that article in the Guardian Mr McKenna. Sounds like hell; I’m off to buy some rope and find a tree.

    • Sensible – sure. I think what is overlooked is that Financial Advice is a service industry. It has also been said with some justification that it is a people business. None of this can be satisfactorily addressed by sitting in front of a computer. Most clients want reassurance and a relationship with a human being. I think Nick Bamford below has also made a very valid point.

      Those who are somewhat better off (in the main – in my experience) really don’t want to mess about DIY, they want proper engagement and a relationship.

      As to your comment about candle making, you evidently don’t know that much about me. I was actually the winner of the one and only Money Marketing award for the use of technology in financial services – admittedly some time ago. Not only do I engage in technology, I invest in it. That is technology that I deem to have serious potential. 3D Printing & graphene as an example.

      However I am also open minded enough to see that some technology is perhaps rather more hype than use. Offshore call centres are a prime example and many firms are now dismantling them as they have at last realised how they annoy customers. Personally I have no truck with things like Facebook, Instagram etc. thinking of them as tools for morons. There are plenty of ways to communicate without them and without disseminating to a huge bunch of so called ‘friends’. Their use is fast becoming invidious and I cannot for the life of me understand why people allow themselves to be bullied – just log off.

  3. No doubt there are plenty of easily automated functions that robots and algorithms can gobble up. I think most advisers though view what they do as a little bit more art than science which could be where the instinct to distrust comes from?
    For sure, not all artists are Da Vincis, but I think they might all produce a better outcome than a robot when given the job of painting an enigmatically smiling lady…

    • It was more art than science twenty-five years ago, but the roles have reversed now. The academics and mathematicians are finally being heard and thankfully will continue to drive positive change in retail financial services.

  4. AI is certainly something that is going to change all manner of workplaces, but is likely to take longer, and come in different forms, to those predicted today.

    So far as IFAs are concerned, much depends on the individual business model. For instance, my own client bank would generally not have a Facebook profile, as they are of an older generation. Thus the remarks about social media data is irrelevant to me and my clients.

    What Mr McKenna so often does is fly to the US, get terribly excited about the latest gizmos, and their slick marketing but forgets U.K. Regulation renders much of this stuff impractical here.

    I suspect at the higher end of the market….where many IFAs gravitate to….fintech will assist advisers rather than replace them, for many years ahead at least.

  5. Duncan Carter 2nd May 2017 at 11:46 am

    We have a roofer in at the moment, I could have got the ladders out and gone on line to see how to fix it but actually I just didn’t fancy doing it as there are better uses of my time. Likewise car servicing, washing the windows or open heart surgery.

    Robo advice simply isn’t advice, meanwhile what about Robo Journalism?

  6. All I want is for someone to invent a bit of technology that means I don’t have to wait 6 weeks to get some data about a client’s existing financial products after submitting an LOA.

    If AI is so bloody clever why hasn’t it solved an actual problem?

  7. James Hurdman 4th May 2017 at 2:26 pm

    This just goes to show what social media is really about – sharing your data with people you’ve never met and them trying to sell you stuff.

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