The Pro’s and Con’s of AI and Robo Wealth Management Solutions Discussed by Robert Cannon

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The new age of AI and Robo Management Solutions has dawned. In a post-pandemic world, predictions point towards more sophisticated applications of artificial intelligence (AI) across industries, which includes financial services, and a Robo advisor will benefit your systems tremendously by allocating funds to a professionally-designed portfolio. However, there are always two sides to a coin, which means that these software platforms also come with a few downsides, which will also be assessed in detail. Perhaps there is no better authority on this than Robert Cannon who has decades of experience in wealth management. When asked him about a detailed analysis of the pro’s and con’s and, the following transpired: 

Artificial Intelligence (AI): The Pro’s and Con’s 

Firstly, intelligence is linked to a system’s ability to generalize its knowledge and then apply it to unfamiliar scenarios in order to improvise and adapt to a new environment, and with the aggregate potential cost savings for the financial sector from AI applications, is estimated at $447 billion by 2023. From chatbot assistance to task automation and fraud detection, artificial intelligence, and machine learning (AI/ML) can vastly improve the customer experience by offering day-in-and-day-out access to their respective accounts and financial advice service, along with streamlining tedious processes. According to artificial intelligence statistics, 75% of business owners trust that AI will provide new job opportunities, and similarly, 40% of business frontrunners are confident that AI will improve productivity. 

When it comes to the financial world, the role of FP&A professionals remains largely untouched since they are the “eyes and ears” of the enterprise and have a crucial role in the overall management process.  

The Pro’s of Artificial Intelligence in Finance

With a wide range of benefits to offer, AI technologies can for instance help with efficiently handling large volumes of information. With this possibility, computers will take over the manual work of analyzing data and creating meaningful reports with the use of real-time dashboards. Considerably more efficient in budgeting and forecasting, these insights and metrics can help FP&A professionals and provide them with more time to build business relationships and to do advisory work as well. 

Showing promising results for risk assessment through the use of advanced software across industries and finance, AI can be much more methodical and calculated than humans when it comes to fraud detection and prevention. On top of that, bias from the metrics can be eliminated by AI-based applications, and improve data quality with better graphics and informative charts which will lead to better decisions and boosted efficiency for FP&A teams. 

The Con’s of Artificial Intelligence in Finance

Most organizations cannot afford premium AI applications at the moment, where the high-end technology is too expensive for the majority of fintech businesses, at least for the time being. Renowned experts have issued warnings that AI will make humans obsolete once computers develop their own intelligence. Yet, the situation out in the trenches shows that no matter how complex algorithms are, they cannot copy common sense and human intuition remains an elusive ingredient in many industries across the board. 

A lack of regulatory scrutiny might also present a problem, since the fine-tuning of the legislation and improving infrastructure management is still in the pipeline with the hope to mitigate the risks of cybercrime. The misuse of data in the fintech business can often result in colossal losses, which is why it is vital with the rise of AI, to be accompanied by constant improvements in security procedures. It is believed that the black box of AI comes with ethical and economic risks, so FP&A teams need to be prepared to face various challenges and prevent malicious use of emerging applications and tools. 

Robo Wealth Management Solutions in 2021

Opting for Robo Wealth Management Solutions entails using a robo wealth manager, also called a robo-advisor, which is an automated investment manager, that utilizes computer algorithms to allocate your funds to a professionally-designed portfolio. Relatively new to 2021, these investment platforms tend to charge a fraction of what a traditional, human investment advisor would, and you could get a higher-quality portfolio at the same time.

A typical robo-advisor will collect information from clients about their future goals and assess their financial situation through an online survey and then uses the data to offer advice and automatically invest client assets. Today, the majority of robo-advisors put to use passive indexing strategies that are optimized using some variant of modern portfolio theory (MPT), and some offer optimized portfolios for socially responsible investing (SRI), Hallal investing, or tactical strategies that mimic hedge funds. 

The Pro’s of Robo Wealth Management Solutions

One of the highlighted benefits of robo-advisors, recently stated by a panel of economists, is that they are much more cost-effective than traditional advisors. Online platforms allow companies to eliminate human labor by offering the same service at a fraction of the cost. In comparison to the typical rate of 1% to 2% charged by a human financial planner, which could also potentially be more due to commission-based accounts, most robo wealth management solutions only charge an annual flat fee of 0.2% to 0.5% of a client’s total annual balance. Furthermore, the minimum assets required to register for an account are significantly less, whereas, in contrast, human advisors do not normally take on clients with less than $100,000 in investable assets, particularly those who are established in the field.

Con’s of Robo Wealth Management Solutions

Using a robo-advisor, on the other hand, will limit your options as an individual investor, since you cannot pick which mutual funds or EFTs you invest in, and you cannot purchase individual bonds or stocks in your account. Another downside of using a robo-advisor is that they are not financial planners which means they are merely a tool that can help you implement and manage your investment portfolio. 

Final Thoughts 

As we start to embrace the evolution of Artificial Intelligence (AI) and implement it as Robo Wealth Management Solutions, there are many reasons why FP&A teams should join the gold rush and try to harness the potential of emerging technologies. Similar technologies will continue to modify the world for the better in the upcoming years and AI-based applications will soon be essential for staying competitive in the ever-changing world of finance.  

About the contributors: 

Robert Cannon is the CEO of Cannon Wealth Solutions. He was interviewed by Adriaan Brits on 19 February 2021 in his quest to compile a special report on wealth management in a post-pandemic world.