“Even in single player tournaments such as Atari or the game Go, humans increasingly struggle to beat the machine. The use of large volumes of data and artificial intelligence are also
entering the investment industry and will affect investment decisions. These systems are expensive to develop and in the end, it will become a race for the best algorithm.
“Often, these tools are black boxes and their decisions will have to be made transparent to clients. Machines act without emotions and therefore make better investment decision than humans.”
That said, they also note that currently artificial intelligence is not sufficiently developed to make decisions without human guidelines.
“Humans are still needed in addition to robo-advisers.”
“In niche segments, there will always be opportunities which humans are more able to identify. Investment robots make decisions based on the past, which often works out very well. But if a company is on the edge and might launch restructuring programmes, such as, for example Nokia, an investment robot might not necessarily be able to deduct this based on past behaviour.”
CLIMBING THE VALUE CHAIN
Jon Beckett, author of New Fund Order: A Digital Death for Fund Selection?, and UK research lead for the Association of Professional Fund Investors notes that the key shift to recognise now is the move up the value chain in use of robots and IT.
“A lot of focus since the 1990s has been focused on the kaizen-led robotisation of blue collar roles. Twenty years on and now we see the increasing likelihood of digitalisation of white collar professions. This is a very real issue that the Association of Professional Fund Investors (Apfi) is wrestling with.
“Digitalisation is already upon us, the question is whether fund research becomes obsolete due to big data or whether it morphs into a cyborg-like symbiosis through the use of next generation fintech tools. Indeed in my 2015 Apfi paper I asked whether ‘fund research was an Apple Watch away?’
“The lines between advice, multi asset solutions and fund selection may become further blurred as investors look for online solutions rather than piecemeal services.
“Fund research will have to move from information gathering to one of judgement based analysis. Those who can simplify their processes through better software will likely succeed. It’s a question of demonstrating optimum economic value at every step a fund selector takes be that digitalised DDQ, cloud based fund info warehousing to crowd research and ratings like sharingalpha.com.
“In some ways as fintech evolves then a fund selector will have less need for an IT degree but likewise old commodities of fund research, like quant and information gathering, will also have little economic value once automated.
“Actually, I worry for the new generation of fund analysts for they are the ones sold on the profession yet facing long-term obsoletion. Veteran fund selectors can afford to be more short-termist and have enough experience to drift into associated roles like fund governance, wealth management, fund distribution, and so on.”
Marcel Müller, partner Manager Selection, HQ Trust in Bad Homburg points to already existing close cooperation with a robo-advice provider.
“We are in close cooperation with a company that provides a combination of robo and personal advice. We are responsible for CIO-services, which mainly includes strategic asset allocation
and the fund selection.
“This shows that the final input is still determined by humans. Digitalisation certainly leads to a reduction of jobs and changes to existing tasks. Robo-advice providers might be able to present their offering as if the fund selection is fully automated, but in the end there might still be a human making the selection decision.”
Jan Tachtler, analyst Manager Selection, HQ Trust, adds: “For retail investors, there is no doubt that robo-advice will play a much bigger role in the future, however, for the wealth
management side, clients expect to be able to talk about their investments.
“The situation is even more complex for institutional investors such as pension funds, where regulation is likely to slow down the transition towards more automated selection.”
Rui Pacheco (pictured), Banco Best, head of Fund Selection agrees that the ‘fourth revolution’ is coming, but perhaps further into the future in terms of its direct impact on fund selectors.
Partly, the industry faces a challenge of what to call its next generation of services; Pacheco does not necessarily agree with the term ‘robo-adviser’ suggesting there is a hint of marketing behind a term such as that.
And there remains a key question over the degree to which the next generation of fund selector is affected by technology. He says that while technology helps, the human element is still required.