Financial Advisers Disrupted By AI (bloomberg.com)

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Financial Advisers Disrupted By AI (bloomberg.com)

Posted by yaelk on Friday February 5, 2016 @08:26AM from the robot-takeover dept.

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.

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And who trusts Financial "Advisors"? by Z00L00K · 2016-02-05 08:28 · Score: 3, Insightful

And who trusts Financial "Advisors" - regardless of if they are human or AI?

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If builders built buildings the way programmers wrote programs, then the first woodpecker would destroy civilization.
1. Re:And who trusts Financial "Advisors"? by HiThere · 2016-02-05 08:40 · Score: 4, Informative
  
  Well, financial advisors have often (not usually, but often) been out performed by random number generators. So it shouldn't be hard to do better than they do.
  
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  I think we've pushed this "anyone can grow up to be president" thing too far.
2. Re:And who trusts Financial "Advisors"? by AchilleTalon · 2016-02-05 08:45 · Score: 2, Insightful
  
  So, why aren't you wealthier than Bill Gates, Warren Buffet, Sergey Brin, Mark Zuckerberg together?
  
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  Achille Talon
  Hop!
3. Re:And who trusts Financial "Advisors"? by whipslash · 2016-02-05 08:48 · Score: 2
  
  I've been using Betterment for a couple of years. Pretty hassle-free way to invest a little, and the tax-loss harvesting is cool.
4. Re:And who trusts Financial "Advisors"? by Z00L00K · 2016-02-05 08:49 · Score: 4, Informative
  
  To make big money it's a combination of being at the right place at the right time and step on quite a few toes.
  
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  If builders built buildings the way programmers wrote programs, then the first woodpecker would destroy civilization.
5. Re:And who trusts Financial "Advisors"? by suutar · 2016-02-05 08:56 · Score: 3, Insightful
  
  lack of seed money, most likely. After all, 3 of those 4 got rich doing something other than managing their portfolio, and Warren Buffett is at the very high end of adviser skill (based on performance) and still took a long time to get to where he is.
6. Re:And who trusts Financial "Advisors"? by Thelasko · 2016-02-05 08:58 · Score: 5, Insightful
  
  And who trusts Financial "Advisors" - regardless of if they are human or AI?
  I trust Bogleheads. Financial advisers are really just salesmen.
  
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  One of our competitors trademarked the term "hypothesis". From now on, we will call them "boneheaded ideas".
7. Re:And who trusts Financial "Advisors"? by prefec2 · 2016-02-05 09:01 · Score: 3, Insightful
  
  a) you do not know if he or she is not wealthier than one of them (or if he is one of them)
  b) the listed people had different profit gaining careers which are not necessarily only based on financial trading. For example, Bill Gates started a software company and got a large loan from his parents.
  c) In a large enough group it is statistical possible that players with the same capabilities, but subjected to a random environment will end with different amounts in the end.
  d) Also if the average advisor is not better than a random generator then there still can be an advisor or player who is better than average who will earn a fortune.
  e) To get really rich, you must understand the financial market. but you also need an advantage by having a special insight in the market and most importantly politics (as politics define the rules of the game).
8. Re:And who trusts Financial "Advisors"? by known_coward_69 · 2016-02-05 09:05 · Score: 2
  
  because these people made money starting companies, not from investment returns. it's been proven many times that a lot of FA's are a fraud who take your money and invest it in indexed funds or buy the indexes. and there are so many hedge funds out there now that most of them don't beat their own averages either
9. Re:And who trusts Financial "Advisors"? by ardmhacha · 2016-02-05 09:39 · Score: 5, Informative
  
  Investing in a diversified selection of index funds and staying the course will beat that vast majority of professional advisers. And the few advisers that will beat the market are not identifiable ahead of time.
10. Re:And who trusts Financial "Advisors"? by ark1 · 2016-02-05 09:55 · Score: 4, Informative
  
  You are confusing Financial Advisors with Fund Managers.Retail Financial Advisors you get to meet for "free" at your local financial institutions are pretty much McDonald workers of financial world in terms of hierarchy. Their job is to sell you whatever makes the most money/commission to the institution and themselves while pretending to care about your goals. They usually have no or low qualifications and follow simple scripts. Fund managers are actually the one managing (ie investing) money.
11. Re:And who trusts Financial "Advisors"? by PopeRatzo · 2016-02-05 09:56 · Score: 4, Funny
  
  To get really rich, you must understand the financial market. but you also need an advantage by having a special insight in the market and most importantly politics (as politics define the rules of the game).
  I am reminded of the line from a W.C. Fields movie. A guy sits down to play cards with him and asks, "Is this a game of chance?"
  Fields answers, "Not the way I play it."
  
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  You are welcome on my lawn.
12. Re:And who trusts Financial "Advisors"? by Registered+Coward+v2 · 2016-02-05 10:54 · Score: 2
  
  Question - "Who or what can make more money with my money without me having to do a damn thing".
  Answer - "Who or what has a proven track record of accomplishing that goal.
  Except past performance is no guarantee of future results. This year's hero is next year's bum.
  
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  I'm a consultant - I convert gibberish into cash-flow.
13. Re:And who trusts Financial "Advisors"? by AthanasiusKircher · 2016-02-05 15:42 · Score: 2
  
  Investing in a diversified selection of index funds and staying the course will beat that vast majority of professional advisers.
  While this is certainly true, I do think there is some use for professional advisers, especially if they participate in financial planning (as many do), rather than just managing investments. (If they only do the latter, you really have an "investment manager," rather than a financial adviser.)
  Several years ago I was convinced by my spouse to go talk to one of these people. We had a recommendation from a family member who is in the financial sector. What was useful was NOT the possibility of ongoing investment advice (which, the parent said, could mostly be summed up with "diversify" and "track the average with index funds or related securities").
  Instead, the utility of financial advice was the overall state of a person's financial "health" in general, and how to get things organized. Stuff like assessing whether you have an adequate liquid "emergency fund," whether you have enough insurance (and of what types), whether you are saving enough for retirement, for kids' education, etc., how to approach making major financial decisions/investments, how to diversify types of assets and accounts to maximize tax advantages, etc.
  Sure, you can do all this yourself. I certainly had the ability to research all of this myself, but frankly I hadn't before I met with this adviser. Some of it I just wasn't interested in learning a lot about, some of it was stuff I hadn't really thought about yet (or considered various aspects in managing risk, etc.).
  To me, once I knew all the stuff after a few meetings, I could run stuff basically myself. Other people aren't as savvy financially, or they really can't be bothered to sort it out (just like many people can't be bothered to do their own taxes) -- so maybe paying for a periodic consultation and assessment could be helpful.
  The problem, from my perspective, is that "financial advisers" focus too much on investments, since their goal is often to grab as much of your assets as possible so they can extract fees for "management," etc. That's where things get stupid. If they really focused on "consultation fees" for providing more comprehensive planning, I think it would be a more legitimate business. But that's hard work. It's much easier to skim a few percent off the top of investment accounts which are "managed" (but really often just designed to track index funds).
More interesting is Age Adjusted Funds by WillAffleckUW · 2016-02-05 08:33 · Score: 5, Informative

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.

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1. Re:More interesting is Age Adjusted Funds by knightghost · 2016-02-05 08:39 · Score: 3, Informative
  
  Excellent post.
  Also keep in mind that many people are "retired" for 20 to 40 years. Most advice from "wealth managers" is what people want to hear rather than what will help them. Diversify, Active Managed, Wealth Preservation - it really only amounts to them skimming more money off. Fees and real inflation reduce the value of your money faster than you spending it.
2. Re:More interesting is Age Adjusted Funds by sexconker · 2016-02-05 08:53 · Score: 2
  
  5% returns over the last 3 months loooooooooooooooooooooooooooooooooooooooooool please show me your crystal ball!
Go away ... by AnotherBlackHat · 2016-02-05 09:33 · Score: 4, Funny

You have been replaced by a small shell script.
Advisors? by h4ck7h3p14n37 · 2016-02-05 09:45 · Score: 3, Interesting

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.
The oncoming destruction by JustAnotherOldGuy · 2016-02-05 11:15 · Score: 3, Informative

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.

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