Robo-advice – don't bank on it

Robo-advice – don't bank on it

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Robo-advice technology prizes low cost over value for money, and is the answer companies come up with when asking the wrong question, states Octopus Group. The company says the financial services sector has failed to embrace the technology correctly.

Just 15% of consumers say they would trust robo-advice related to online investment management, according to an Octopus survey. And active distrust of robo-advice is most prevalent among those aged 55 and older (63% of respondents) and higher among retirees (71%).

And clearly, robo-advisers aren’t doing a good job in wealth management. Separate research from AltFi finds that of the 17 financial robo-advice services operating in the UK in mid-2017, one-quarter have closed or been forced to alter their business models. 

 Two of those failures were UBS SmartWealth and Click & Invest (Investec), both of which were well-financed by powerful entities. They closed due to high customer acquisition costs associated.

 There are certainly a raft of concerns around the technology. One of them involves regulation, with tech experts warning that artificial intelligence-driven robo-advice can’t be properly policed as the decision process is impossible to determine.

“Large amounts of personal data can help predict what will happen in the future which, on the face of it, sounds ideal because most financial services firms are sitting on a lot of the data,” Ben Taylor, CTO at AI outfit Rainbird, tells FT Adviser. “But machine learning models are full of numbers and not interpretable for most humans.”

He explains that this means regulators would find it pretty much impossible to understand what led to incorrect recommendations or bad advice.

 To tackle the issue, the Financial Conduct Authority recently joined forces with the Alan Turing Institute to look into the “explainability” of AI in the financial sector.

The institute says the project “will examine current and future uses of AI across the financial services sector, analyse ethical and regulatory questions that arise in this context, and advise on potential strategies for addressing them.”

Gimme that 4-day week

It’s time to really scrutinise AI

It’s time to really scrutinise AI