November 13, 2015

ONE OF THE CENTRAL CONCEITS OF THE AVERAGE IS OVER" SCHOOL...:

The robots are coming -- and they want to make you rich : The age of robo-advice -- driverless investment portfolios governed by algorithms -- is already upon on (Jonathan Davis, 14 November 2015, Spectator)

The phenomenon everyone in the sector is suddenly talking about goes under the generic name of 'robo-advice' -- which is how it is known in the United States, where all things techy and most tech-related fads inevitably originate. As is the way of such things, however, it's a bit of a misnomer. What we are talking about with 'robo-advice' does not involve robots providing the full spectrum of financial advice in the sense that the Financial Conduct Authority, the UK industry regulator, currently defines and regulates it.

Financial advice, in its broadest sense, involves looking at an individual's circumstances in the round, taking account of their age, family circumstances, income, wealth and tolerance for risk. It encompasses not just how you invest your money, but also more specialist fields, such as insurance, tax avoidance, divorce and estate planning. Financial advice, in this all-encompassing sense, is not going down the robot route any time soon.

But key parts of the range of services for which savers and investors currently pay investment professionals, including some elements of financial advice, will increasingly be placed in the hands of machines. If you use an online platform, the record-keeping and performance monitoring of your money is already automated. If you do your own research into shares or funds and buy, say, a passively managed tracker fund -- as more and more people sensibly do -- the shares in that fund will in practice be chosen, and then bought and sold, by a computer following a simple set of investment rules: for example, buy all the constituent shares of the FTSE 100 index in proportion to their weights in the index and sell them when they drop out of the index.

But there is potential for automation to do a lot more. 'Robo-advice', loosely defined, is making waves precisely because it is about extending the reach of computerised rule-based approaches into other links in the value-chain of services that investors currently pay for. Increasing automation of fact-finding and portfolio construction in particular is set to become much more widespread.

How does that work? Well, go to one of the robo-advice websites and you will typically find a detailed questionnaire that asks you about how much money you have to invest, how long you want to keep it invested, and your attitude to risk. Once you have completed the process, in your own time and at your own expense, your robo-adviser will use a set of algorithms to come up with what it considers the optimal asset allocation for your portfolio -- so much in shares, so much in bonds and other fixed interest instruments, so much in property and so on.

In practice this is no more than most advisers and wealth managers already do, more painstakingly, when you go to see them in person. It can take several hours to go through all the relevant questions, all of which you eventually pay for, either as fees (if you have hired a fee-based financial adviser) or in future management charges (if and when you then sign up as a client). Going down the robo route should save you those costs, depending on which business model the robo firm has chosen to adopt.


...is the idea that the people who know about it are irreplaceable (the intellectual class).

Posted by at November 13, 2015 5:42 PM

  

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