A.I., or artificial intelligence, can be found everywhere these days: from marketing (“you might like this…” based on what you bought last time) to traffic (in Austin, the price for some toll roads changes based on traffic flow). A.I. is a powerful technology that can be attractive in many industries. So, it’s not surprising to me when I hear investors and financial advisors wondering: “does it make sense to use an A.I. program in my financial life?”
Good question. When would an investor prefer having a robot, or “Robo Advisor” using a mathematical algorithm, instead of a human behind the wheel? To save costs on fees? Does a Robo give more unbiased advice, or yield better results? Is a Robo simply a personal preference? These are questions that are hotly debated in the financial industry, as you can imagine. And it’s not new. For at least ten years, I’ve seen headlines about the “death of the advisor and the rise of the robots.” But we (financial advisors) are still here. Why?
In a recent discussion with colleagues, I learned about a parallel conversation in the medical industry: years ago, doctors (specifically surgeons) were told that robots would eventually take over their jobs, making the human beings not only obsolete, but also dangerously outdated. After all, who wouldn’t want the relative guarantee of robotic accuracy over the uncertainty of human error? (Especially if you’re dealing with something like heart surgery!) Apparently, this conversation started back in the 1980s! But doctors and surgeons are still here. What does that tell us?
It tells me that the appropriate use of technology can strengthen and improve an industry. But it can never replace a human being. And therein lies the answer.
There are some things that technology can do better than humans. For example, analyzing large quantities of data and identifying patterns. Being data geeks at Shadowridge, we embrace this. We have developed our own A.I. and have written algorithms to help guide our investment decisions. But we still have the human element to confirm the actions that the data suggests. Without this, we lose something essential.
The flexibility and artistry of the human mind are possibly even more powerful than crunching data. Take a look for a moment at the creativity we have seen in response to COVID19. The very fact that many businesses shifted to working remotely is an incredible adaptation. Even school choirs are figuring out how to sing separately yet together. It’s been a challenge, but we are figuring it out.
Compare that to the response of some A.I. systems, and we begin to see the flaw with these programs. An article in Fortune magazine recently reported that:
“once the COVID-19 pandemic hit, A.I. systems had to be overhauled. The software, it turns out, had never been trained with data reflecting a drastic upheaval in consumer behavior caused by the virus and therefore couldn’t adjust to the new reality.”
And that’s not just in retail programs like StitchFix and social media programs like Facebook. We’ve seen in the past how A.I. systems have broken down when stock markets misbehave (for example, in 2018). Sometimes computer algorithms have even contributed to stock market volatility (for example, multiple “flash crashes” over the past 10 years). Even the most robust technology programs have their flaws. They might not be human flaws, but they are problems we need to acknowledge. Software can only do what it has been programmed to do. When life gets messy (which is often the case during medical or financial situations), that’s when human beings need each other.
When you are on an emotional rollercoaster, a computer may fail to recognize this, let alone compassionately change the way it presents information so that you can better receive it in a highly stressed state of mind.
When you are about to make an irrevocable decision, algorithms aren’t going to stop you and ask you how your current actions align with what’s most important to you, to possibly prevent you from hurting valuable relationships.
When you are stuck or overwhelmed, technology probably isn’t going to help you recall a high point in your life that you can connect to during challenging times, so you can keep moving forward.
We do that.
Does it make sense to utilize modern technology, algorithms, robots to aid in investment decisions? Certainly. In a data-driven area like finance, using powerful tools makes sense. Are human beings worse advisors than robots, and will they eventually be replaced? I don’t think so. If anything, human beings, such as compassionate financial advisors, are needed more than ever to help wade through all that data, personalize the decision-making process, and lead those we serve to better, more enlightened outcomes.
And that’s a result I think we can all appreciate (even the robots).