Banking Technology | By: Banking Tech | October 02, 2017:
Robo-advisors are software programmes that provide financial advice with minimal human intervention. Software has been providing advice for half a century, from portfolio management to trading strategies to currency management, and more. The novelty is providing robo-advice direct to consumers.
Robo-advice costs less than “bricks & mortar & human” services, hopefully harvesting a bigger market. Today it primarily invests clients’ money in mainstream investments aimed at generating attractive risk-adjusted returns over time.
Historically, a human advisor and client went into a ‘darkroom’ and came out with decisions on which products to buy. At least one of them stood certain to make money; sometimes both, if the client got lucky.
Nobody can ever prove what happened between two human heads in the darkroom. Records on the financial position were vague; risk appetite analysis facile; product decisions clear at the time, but murkier as the client rolled over annually.
Done well, the process allows for considerable judgement. If one believes in the human touch, the darkroom approach can be great. If one is sceptical about active management, then robo-advisory seems better, more consistent.
But wait. With mutual distributed ledgers (aka blockchains), there are going to be immutable versions of what was advised, what happened, and what the robo-code at the time decided. Robo-advice with blockchain leaves a permanent trail. Here is a cross-examination from the future, the successful 2027 Class Action Suit against Brexitannia Wealth Management:
On client data – “So you carried out no validation of your clients’ assets, for example an external appraisal of home value, the principal pivot for financial wealth and risk-adjustment for most people? You didn’t validate their account balances? You just took your clients’ estimates at face value?”
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