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Financial Advisers Disrupted By AI (bloomberg.com)
schwit1 writes: Banks are watching wealthy clients flirt with robo-advisers, and that's one reason the lenders are racing to release their own versions of the automated investing technology this year, according to a consultant. Robo-advisers, which use computer programs to provide investment advice online, typically charge less than half the fees of traditional brokerages, which cost at least 1 percent of assets under management.
And who trusts Financial "Advisors" - regardless of if they are human or AI?
If builders built buildings the way programmers wrote programs, then the first woodpecker would destroy civilization.
A lot of American and Canadian retirement accounts are in "age adjusted" funds, which are really just a mix of mutual funds or ETFs of bond funds and stock funds.
If you check, you'll find most large firms have an S&P 500 index from Vanguard or Fidelity (like the VINIX) which has an expense ratio of around 0.02 or 0.04 percent, and a Total Stock Market index with an expense ratio of around 0.05 or 0.07 percent and a Total Bond Market index with an expense ration of around 0.10 or 0.12 percent.
You could replace the "age adjusted" fund that charges you 0.40 to 0.65 percent with an automatic stock fund and bond fund allocation, e.g. 70/30, and then just reallocate periodically. Cost to you drops from 0.40 to 0.05 percent, in many cases.
That's all these "wealth firm robots" really do. You can buy the underlying components and pay less.
It's the fees that kill you. You don't notice them when returns are 12 percent, but when the market is crawling (like today) with 1-2 percent returns, you sure notice the fees that siphon off up to 1/4 of your earnings.
-- Tigger warning: This post may contain tiggers! --
Oblig Manna link.
And FutureAdvisor provides robo-analysis for free. Sure, you can pay them 0.5% a year to manage your portfolio for you, but they tell you everything you should do.
Of course, they go heavy on international funds and REITs, and you can't have it tilt funds in the direction you want. But they encourage extremely low-cost index funds and seem to be a good option.
If someone hacks these, we're all in a world of pain. Everyone tanks simultaneously, there will be huge layoffs everywhere all at once and no vacancies for the month it takes to realize that they kicked the wrong kids out. In short it's industry's event horizon for infinitely gauche rear end negative money pain. Ouch!
The purpose of existence is to make money.
You don't notice them when returns are 12 percent, but when the market is crawling (like today) with 1-2 percent returns, you sure notice the fees that siphon off up to 1/4 of your earnings.
Um...
Yeah, it's terrible because the fees are comparatively large when the market isn't doing good.
But, it's really *great* when the returns are 12 percent, ya know?
What's the overall return? Is it really worth my time to figure out the financials?
My Fidelity account manager mentioned that my account had a growth of 7% over its lifetime.
Should I really take the time to figure this stuff out, try to beat that figure, worry about making the wrong move at the wrong time (and losing a lot), and try to compete with millisecond timing, insider trading, and PhD quants who do this as their day job? (And try to do this while reading slanted, biased, and conflicting market analyses that I see long after the insiders do.)
There's like 5 ways to get rich in this country (meaning: 5 categories, depending on how you slice the categories (*)) and stock market investing *isn't* one of them. The chance of success is very low, it falls in the same category as "win the lottery" or "discover a priceless antique at a yard sale".
Add to this the fact that accounting seems to be a mishmash of arbitrary rules with no real social value, and the whole thing seems to hold very little interest for me (viz: American tax code).
I mean, really. We're the smart people in the room - rather than try to siphon money from a rigged system, shouldn't we be discovering new science, building new devices, and having original ideas?
Is doing this worth my time?
(*) The two which are available to regular people are "start a business" and "commission sales", where the sales thing is for high-price commodities such as telecoms equipment or weapons systems.
The human component of investing is all sleaze and marketing anyway. Just middle men there to smile at you and shake your hand while their free hand reaches in to your pocket. Just look at the type of people that go in to finance (Sociopaths).
Managed funds rarely outperform plain index funds anyway (Investment managers will stuff profits in their pockets before it goes to yours anyway). Well researched AI will probably knock it out of the park.
Bet those smarmy suit wearing sleazeballs never thought they'd be among those automated out of job.
Next on the chopping block, with any luck, will be car salesmen and dealerships.
I have always felt better managing my own finances. There are some really basic things you can just read about without an advisor or bot. I have never heard of an advisor that gave really in depth advice, open an Ira, invest in index funds. Or they try and sell you a VUL. Turbo tax is not a bad thing.
You have been replaced by a small shell script.
I don't understand why the term financial advisor is used when they are just salesmen. What advice do they provide other than, "you should definitely buy our products", or maybe, "I would advise you against closing your account with us"?
I have one retirement account that's managed and another where I self-direct the investments. My self-directed account has been out-performing the one where I have an "advisor". I know I would never in a million years go to him for financial advice and am just about ready to close that particular account.
Most of the people using these "Financial Advisers" and paying 0.5% to 1% of their retirement portfolio are only really getting standard advice that is available on just about any mainstream stock market 101 for retirement website. It really isn't worth the fee unless you can't be bothered to do basic reading. For financial advisers this is just a gravy train. There is no "Artificial Intelligence" behind it. You could get the same thing off of a simple spreadsheet.
The oncoming destruction of the market will be the fault of shit like this and high-frequency trading run amuck.
A few numbers go "boop" and that triggers some insane sell-off, which cascades into further panic selling which triggers some out-of-band responses which lead to more extreme selling and/or buying...the much-vaunted "financial circuit breakers" fail or are overridden in a desperate attempt to salvage what little is left and by the time it's over the entire stock market will be worth the price of a used Buick.
You wake up to find out your retirement account will barely buy you lunch at McDonalds, but thankfully the hedge fund managers are still okay.
Just cruising through this digital world at 33 1/3 rpm...
It's been shown time and time again that financial managers are about as good as a set of dice. So I fail to see how an AI could be worse.
..nuff said.
Its easy to test how well your advise-o-rama works: have it prognosticate, then wait and see how its guess pans out. If Its correct, then you have a bit of confidence. If it doesn't then you don't. Repeat the test about 50-1000 times, and see where its good and bad. If you are more good than bad, then using it is (in general) a good idea. You can also get an idea of where its more right than wrong and how to improve your outcomes. Its all a giant crapshoot anyway, but if you can use it to get ahead, and not pay some suit (every time I see some business maven lately I see Martin Shkreli, eyes rolling, smirking, not just thinking but calling congress people imbeciles). Can be replaced by a button.
World the would make 1 percent on the money made above what you gave them.
No earn no pay.