Why AI will never replace your financial adviser.
For those who worry about AI (and technology in general), sounding the death knell of our careers, it is worth considering the limitations of AI before concluding that we will all be replaced. Yes, AI will be able to review all the historical market data in minutes (or at least faster than the average financial adviser), but markets are not solely made up of numbers that move up and down on a screen. Markets are impacted by sentiment – and this is where empathy enters the equation…and you really see the limits of AI.
FOMO
Sentiment is the collective attitude investors have towards a specific security or market (e.g. the stock exchange). Some might refer to it as the “wisdom of the crowd” – the collective opinion of a diverse, independent group of individuals rather than a single expert. Others might just think that traders and investors are driven by the fear of missing out (FOMO), causing an increase in prices of an asset that have no basis in reality. In contrast, in bear markets, investors will be driven to sell stock at prices well below their value because they want to avoid the feeling of pain caused by losing money.
Sentiment Analysis
Advances in technology are most certainly identifying new possibilities but it’s all still relatively new. Data from these platforms add a new dimension and new insights, when leveraged by financial advisers. AI can be used to find patterns and correlations between sentiment and price history from the stock market much faster than even the most talented advisers, but this convergence of data still needs an empathetic view in order interpret and predict the trends.
Financial advisers can look at the markets, trends, and sentiment analysis before aligning this information with a desired financial outcome. Your financial adviser will empathise with your fear of risk, ambitions, and aspirations – something that an AI algorithm can not mimic. Irish people are quite keen to leverage the expertise of a financial adviser. According to a recent global survey conducted by State Street, when asked if people would prefer to draw down their occupational pension scheme or seek financial advice, the financial adviser was “the narrowly preferred provider (65%), with the US (68%) and Ireland (66%) showing the greatest penchant”. In fact, of those surveyed, financial advice was ranked as the second retirement planning resource they would like to see offered in the workplace and showed a slightly higher preference for receiving a retirement income solution from their financial adviser, as opposed to their employer.
“Welding a JCB to a Ferrari doesn’t make a machine that can dig roads at 200 mph. It makes something that can’t do either job properly.” – Dave Trott, Predatory Thinking
When it comes to AI and the markets, keep it simple – outline your goals, decide on your appetite for risk and talk to a professional. Otherwise, you can end up with a financial model, created with the sharpest of technology which fails to live up to expectation.
The Future
AI promises big things but remember, technology has a limited lifespan (something iPhone owners know only too well). The edge enjoyed by any one model will only exist as long as competitors are unaware of it. Once the competition catches up, the technology must evolve and unfortunately, you could be left with a legacy model that is not keeping up with the rest of the pack.
While we might be biased (as both humans and financial advisers), we are not expecting our “pink slips” in the post just yet. We take a holistic view of our clients’ needs, appetite for risk, goals and access the best information available, ensuring a secure financial future is assured.
The Present
If you are wondering what you should do now, we have some simple advice form a previous post about the Time Value of Money – “Consider the value of time on your money. Invest cash wisely, take appropriate amount of investment risk in your pension and inflation proof your savings, by investing them in funds rather than a low or no interest paying bank account”.
As amazing and powerful as AI is, there is no accounting for human emotion. We hope never to be proven wrong, as we might just be out of a job if that happens! Until that time, our team of financial advisers are here to help you navigate the future – whatever it might hold.
Here to help you navigate your way to financial security.
The Milestone Advisory team are qualified financial services consultants. We specialise in helping professionals in the construction sector and related industries. Our team will work with you to review your finances, explaining your options in clear English.
No jargon – just the facts.
For more information, contact info@milestoneadvisory.ie
Milestone Advisory DAC t/a Milestone Advisory is regulated by the Central Bank of Ireland.
Warning: The value of your investment may go down as well as up.
