It’s easy to see why robo-advisers are so popular. They bring simplicity and mechanized efficiency to investment management at low cost. And it’s equally clear the idea of “open banking” intrigues people, with its vision of networked conveniences for saving, borrowing and cash transfers.
But frankly, if I were inclined to automate my money, those amenities wouldn’t be enough. I’d want a much more ambitious option.
I’d want something that could comprehensively optimize my finances. It would be a tool designed to enhance the effectiveness of my investments and every other aspect of my financial life. Like managing my cash flow, paying my bills, selecting insurance and finding me the lowest available mortgage rate.
I’d want it to figure out whether I’m better off leasing or buying a car. And whether I should use my bonus to pay down debt or to open a tax-sheltered savings account. It should know what government grants are available to help pay for my kid’s education, and it should tell me if my retirement plan needs tweaking after last month’s shift in bond yields.
In short, I want an inexpensive online financial planner, portfolio manager and personal CFO rolled into one. Let licensed professionals oversee it, sure, but augment their skills through artificial intelligence and advanced machine-learning principles. Then deploy this financially astute cyborg 24/7 to relentlessly grow my wealth, freeing me to focus on other things.
Sci-fi fantasy? Maybe not. Algorithms already drive cars down busy city streets and land space probes on comets, so something this intricate isn’t beyond the tech world’s existing capability. They could build it.
They could give it functionality to operate in “demo” mode for several months, if I wish, using real-time market data and actual transaction information drawn from my bank accounts, credit card accounts, investment portfolio and pension fund. That would allow me to see whether I’d truly be better off letting it handle my finances.
Once convinced, I could switch on “recommendation” mode. It would only make suggestions in that setting; but like a GPS, it would recalculate my best course if I elect not to take a proposed turn.
Or I could pick “autonomous” mode, where the service would just go ahead and do whatever it deems necessary to make things better for me.
Either way reporting would be a breeze. If I want, as frequently as I want, the service could send me e-mails or texts telling me what it’s done and why.
During market turmoil, it could figuratively hold my hand by reminding me that my portfolio’s built for the long haul. It could also send me reassuring links to academic studies on the importance of staying invested, or the futility of trying to time the market. And on calmer days it could urge me to spend less and save more.
There are many ways this service could be paid for, but perhaps the best would be to monetize it like a streaming app, Netflix-style, through fixed-rate monthly subscriptions instead of transaction commissions or asset management fees.
As a subscription-based service, it would be agnostic when selecting investment products and financial strategies, keeping it free from conflicts of interest – the kind that invariably arise when adviser compensation is tied to product placement, service upsells or the value of assets under administration. And that’s huge, because conflicts of interest breed bad advice and expensive fees that erode investment returns.
Of course, I’m making a bit of an assumption here. I’m assuming a project like this will appeal not only to innovative fintech startups, but also to global heavyweights such as Apple, Google, Facebook and Microsoft. They’re the ones with the technical savvy and massive scale needed to pull this off profitably and affordably at the same time.
Plus, they’ve already got the clientele. Billions of their customers rely on them daily for personal communication, connectivity, digital record storage and online commerce. Cybertronic wealth management wouldn’t be out of place in their relationship with the public.
So, what do you say, Big Tech – are you up for this? I’m guessing you are. Maybe you’re even working on it already.
But keep one thing in mind. You’ve got to make this very secure and economical if you want to win over people like me. Remember, we can still get advice from human investment counsellors and financial planners, and banks still want us as customers.
That said, there’s no hiding the fact many of us are disenchanted with the financial advice industry. They aren’t focused as much as they should be on improving consumer outcomes. Instead, they keep working against our interests by perpetuating conflicted commercial practices and charging high fees.
Which makes them an industry ripe for wholesale disruption.
You tech folks surely must sense this. And no one knows better than you how open people everywhere are to innovative new things – especially the integrated, smart, life-simplifying aids you’re so good at devising.
Well then, bring more of that stuff forward. Give us new ways and more possibilities to enhance our financial lives.
Neil Gross is Toronto-based capital markets policy consultant.