Computerized or automated financial advise is still in its infancy, but on the long run it will make financial advise affordable and accessible for a wide range of consumers, according to research from marketing professor Benedict Dellaert at Erasmus University in Rotterdam.
According to Dellaert the rise of so called robo-advisers is beneficial for consumers. Specifically when looking at the fact that these systems are able to take on an increasing amount of responsibility. Since people need to more actively use digital financial services compared to a generation ago, robo-advise can provide valuable assistance to help people find their way.
In the not so distant future it is expected it will become common practice to receive mortgage or insurance advise from a computer. These advises will be based on enormous amounts of data and special algorithms that are able to make sense of it. Dellaert believes that human advisers will continue to play an important role, but their function will be more prominently required in the preliminary stage of providing advise and in the form of personal coaching.
Dellaert and Tom Baker from the University of Pensylvania recently published a paper on how to regulate robo-advise in the financial sector.
According to Dellaert automated advise will not only be cheaper, but also better. Because there is more available data, the advise will be more personal, with more room to provide custom advise. Even so, it is expected that a combination of human and automated advise will remain the standard.
The rise of robotic advisers provides financial market watch dogs with new challenges. At the moment the market for automated advise is not so big, but as its importance will grow, the risks will as well. When a middle man makes a mistake today, only one consumer will be affected. When a robotic adviser makes a mistake it could potentially reach millions of customers.
In order to narrow down the effects of poor robo-advise Dellaert and Baker pledge for a black box, similar to what has been proposed for self-driving cars. This would make it much easier to regulate responsibilities when things would go wrong.
The most important data, like process leading up to an advise, the market situation and the characteristics of the consumer, should in this case be recorded. Not the advise itself. Once something would go wrong, the entire process could be analyzed. The black box would thereby protect the provider of the service as well as the consumer.
The Dutch asset company Pritle is one of the first to offer completely automated financial advise. Thomas Bunnik, founder and CEO of Pritle, concluded after eight years at ABN Amro that the way in which the bank dealt with asset management did not meet the needs of investors. Aside that, Bunnik wanted to offer more people access to their assets for lower costs.
Customers of Pritle are able to make an online account within five minutes and set their financial target. Of the 6500 customers Pritle currently has, 70 percent invest for their pension.
The technology from Pritle automatically generates an investment portfolio containing index funds that try to generate a similar profit as a certain stock exchange by mimicking it. While the processes are completely automated, when customers feel the need to speak to a person they can still call, chat or email with the customer service.
Pritle hopes to reach 75,000 customers within the next two years. Aside that, the company thinks about collaborating with other, larger parties within the financial sector.