How AI Portfolios Are Changing Personal Financial Planning

August 14^th 2018

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Imagine that you want to do personal financial planning and walk into your financial planner’s office to realize that your advisor is on a holiday. But, hey not a problem! The angular and efficient robot guides you to a separate room with a large computer where you are required to log into your financial planning account. Once you log in, the screen informs you that your portfolio earned 17% in the last one year. The computer also announces that since the RBI is planning to hike interest rates it may make sense for you to shift from long dated debt funds to short dated debt funds. Your equity portfolio is up by 23% during the last year. The computer advises you that since the Nifty P/E has crossed 27X earnings, it would be advisable to partially hedge your risk with put options and requests your consent. The moment you press the “Yes” button, the robot dutifully hands over a contract paper for you to sign giving consent to hedging your portfolio with options. By the time your favorite black coffee arrives, you are almost through with your portfolio review.
If you think that the above situation appears to be too hypothetical and representing the distant future, then you are mistaken. Financial planners are making giant strides in the field of robo advisory and use of artificial intelligence in mutual fund and investment.

Use of technology in Personal Financial Planning

You may actually get to meet your robotic financial advisor in the very near future. But first, let us understand how technology is drastically changing the way do personal financial planning

1. Making technology a 24X7 support service

   We all know the need to have a financial advisor to help us translate our dreams into objectives and our resources into tools to achieve these objectives. But the big challenge is to get adequate access to information, research, value-added insights and the financial advisor’s quality time. Technology is likely to change all that. With its ability to store the complete profile of the customer in the system, mine the other sources of data and customize solutions for them, technology could make this entire task a lot easier. The customer will have 24X7 accesses to the financial planning account; you can simulate the impact of various actions immediately and take appropriate action as advised by the technology-backed support service. In fact, that is what the Angel ARQ does to a large extent by combining customer intelligence and domain skills to give real time solutions without the bias of human interaction.

2. Big data gives a new dimension to the supply side and the demand side

   Big data has become fashionable word today but it can bring about a substantive shift in the way we do financial planning. There is the demand side to financial planning and there is the supply side. For example, the demand side of financial planning requires that you understand the customer, understand his profile and give solutions. Then there is the supply which provides customized research, information and analysis for the customer that is relevant to his goals and portfolio. That is where big data comes in. Let us take the demand side. Creating a profile with the information entered by the customer is the simpler part. The tougher part is fine-tuning this profile by analyzing the customer’s interaction chain with the advisor, gaining inputs from the customer’s social media profiles etc. On the supply side, Big Data can organize and seamlessly run mega algorithms which can simultaneously evaluate the impact of a multiplicity of variables. All this gives a new dimension to the supply side and the demand side of financial planning.

3. Artificial intelligence and machine learning portfolio

   Actually, this is going to be the big trend in financial planning. There is a subtle difference between AI and machine learning. But we will not get into those niceties. For the time being, let us understand both these concepts as interchangeable ideas! John McCarthy, the father of Artificial Intelligence, defines AI as “The science and engineering of making intelligent machines, especially intelligent computer programs.” Remember, computer programs are designed for dumb execution. But what if machines can be programmed to learn from experience? What if machines can understand the mistakes made by the program and make alterations? What if machines can create an auto feedback loop and use the feedback to improve the delivery of solutions to the customer? What if the machine can automatically learn that certain data points are not working or some variables are misleading. How to build such intelligence into computers? That is the challenge of Artificial intelligence and machine learning.
   Interestingly, financial advisors are increasingly using AI and machine learning portfolios to deliver hyper intelligent financial planning solutions. The Angel ARQ is again an example of that. It not only use machine learning and a hyper intelligent algorithms on the demand side of financial planning but also on the supply side. Eventually, the solution becomes more robust as more data points are considered; the customer is better profiled as they consider multiple facets and the delivery of the solution becomes scalable and therefore more economical. In a nutshell the impact of technology on financial planning is huge; and it is coming fast!