The rise of the machines IOL Personal Finance

THE disruption of the financial services industry, which began as a trickle, is quickly turning into a flood as start-ups introduce innovative products and services designed for a new generation of consumers, and the established providers are forced to reinvent themselves. Robo-advice and artificial intelligence (AI) technologies, which use algorithms and machine learning to do the job of financial advisers, analysts and active fund managers, are expected to grow significantly in the coming decade. It is forecast that robo-advisers could manage about 10% of total global assets under management by 2020, according to a study by BI Intelligence. Gavin Smith, the head of Africa for deVere Acuma, an independent financial advisory firm, says: "Algorithmic trading automatically and immediately adjusts to new developments. Theoretically, robo-advisers should be able to constantly act to perform according to an investment mandate. "There are many advantages to the introduction of robo-advisers and AI into the financial services sector," Smith says. "It brings down fees, speeds up administration and saves time." However, what automated systems lack, he says, is the ability to liaise with you and understand the nuances of your requirements and changing circumstances. "When it comes to understanding your goals, specific circumstances, and blending these with your retirement, tax and estate planning, robo-advisers are nowhere near to replacing good financial advice," Smith says. As a result, some financial services providers are trying to marry the automated and personal approaches in an effort to get the best of both worlds. Last week, Personal Finance highlighted OUTsurance's new investment product, OUTvest, which relies on semi-automated investment advice. Below are four more recent innovations that are likely to contribute to the shake-up of the industry. NMRQL Research, the fintech company co-founded by Michael Jordaan, the former chief executive of First National Bank, this week launched South Africa's first unit trust fund powered by machine learning. The NMRQL SCI Balanced Fund, administered by the Sanlam Collective Investments platform, is a regulation 28-compliant collective investment scheme that invests in a diversified portfolio of domestic and international assets, where the asset allocation and stock selection are systematically managed using machine learning algorithms. The process looks for hidden patterns in underlying big data. These patterns can be exploited to forecast returns across asset classes and markets. Jordaan says: "As humans, we suffer from various cognitive biases.