When we used to talk about disruptive forces, it was often in a negative way. The disruption meant systems breaking down and things falling apart. Today, however, when people talk about disruption, it is meant positively. It relates to the introduction of new technology that can revolutionise how we do things in future.
Digital disruption in the finance and fintech sectors is changing the way we save and invest, and it’s something we should all embrace.
Robots have been working alongside humans in the industry for decades. Drones are now being used as delivery vehicles, and the automation industry is working on robotic and flying cars that will employ artificial intelligence.
Our hospitals are employing smart machines in the health sector, and in the computer software world, blockchain and cryptocurrencies are everyday conveniences.
The finance industry is at the forefront. New phone apps allow us to manage our money while we are on the move. In the wealth management business, Robo advisors and autonomous robotics algorithms are becoming everyday tools. But where will we go from here?
To get an idea of what might be coming by, say 2025, we need to review what finance leaders are doing right now and what technologies are available. If we then combine or repurpose these technologies, what will that mean in terms of the work that needs to be completed and by whom? How can finance be used to further improve the success of enterprises?
Apart from the management of money, the next most important function of finance is to predict what will happen. Armed with such forecasts, businesses can employ the right strategies to deliver their goals and build in contingency plans to recorrect their paths when unexpected events like the Coronavirus pandemic and the global recession of 2008, which kicked off following the US subprime mortgage fiasco happen.
Until recently, forecasting was mostly a manual process involving teams of people studying reams of reports and often using spreadsheets to model various outcomes dependent on particular criteria. It was slow, clumsy and often inaccurate.
Now, businesses are beginning to harness new technologies when it comes to forecasting and making predictions. Staff can work with new, predictive algorithms, which can be created on the back of the availability of cutting edge advanced analytic platforms, the arrival of in-memory computing, plus AI (Artificial Intelligence) and machine learning.
Algorithmic forecasting is a game-changer. It enables us to build complex models that can show what will happen in various circumstances. It makes use of historical and current market and company-specific data. This data is fed into modern computing technologies that mean its storage and manipulation are rapid and cost-effective.
The full impact and potential of algorithmic prediction are realised when it melds with human intelligence. AI produces forecasts based on the input data and its interaction in various situations, and then human intelligence uses those outcomes to determine decisions, actions and paths.
This interaction between man and computer makes forecasting through the use of purpose-specific algorithms so successful.
We are now seeing this type of technology being used by some of the top wealth management specialists here in the UK. Robo-advisors or autonomous robotics algorithms are successfully employed to assist with managing the investment portfolios of clients. One of the attractions is that this service is significantly cheaper than hands-on human management.
Robo-advisor technology is becoming very popular with millennials as it provides them with an opportunity to take charge of their finances earlier in their lives. The pandemic is responsible for the increased interest in financial Robo-advice.
Being quarantined at home with time on their hands, people took to the internet out of boredom and did their research. Many people in the USA, Canada and the UK jumped aboard the Robo-advisor bandwagon.
This year, United States estimated that 3.5 million investors will use Robo-advisory services to manage their investment portfolios. It represents an increase of 23.2% over 2020, which in itself saw growth of 37.4%. It is estimated that by 2025, over 5 million US citizens will be using Robo-advice.
In the UK, although the total numbers are smaller, in terms of people turning to Robo, we are the fastest-growing of all nations. This year, more than 420,000 are already onboard – 25.2% more than in 2020, which in itself saw a 55.6% increase. By the year 2025, the number of Robo-advisor devotes is predicted to rise to over 700,000.
One of the main advantages of algorithmic algorithm forecasting is its speed and simplicity. The pandemic has thrown the most comprehensive challenge at investors in the past decade, but because Robo-advisors can react quickly, the rebalancing of portfolios is faster.
While Robo advice is not yet mainstream, it continues to grow in popularity. By 2025 the take-up of hybrid Robo-advisors, utilising the latest algorithmic forecast technology, together with human input from top experienced wealth management professionals, is expected to grow significantly higher.