AI: Robo Advisors

For those who have seen Matrix and Space Odyssey 2000, understand the disruptive power of AI. Artificial Intelligence might not be truly disruptive in the way it’s portrayed in the movies. Disruptive Power is the ability of a new technology to change the pattern of consumer behavior. The introduction of Smart Phones led to the disruptive technology in mobiles. Before smartphones, the primary purpose of mobiles was to talk with people but with Smart Phones, the slogan changed to…and you can also use it for talking. Smart Phones refined the way we interacted with others through social platforms or the consumer buying power. Apps were the catalyst through which consumers leveraged technology for their gratification.

Recently Morgan Stanley, one of the leading private bankers in the world announced that they using robot advisors to consult clients (clients who had less than $1 mn in surplus investible surplus).  I worked in wealth management and private banking so I understand the industry well. It’s not profitable for a bulge brackets like Morgan Stanley to have humans advise clients for retail clients. This helps Morgan Stanley to effectively address a segment in a cost efficient way. But at the same time to ignore them would not be prudent. Robo advisors do a magnificent job in advising on investments, portfolio management, and asset allocation with minimal supervision and cost (Cost accrued over a long time since they can be reprogrammed and the variable costs are minimal). It hard to envision the impact of AI and whether they would replace many segments of human employment. There are many theories but innovation in technology always increases productivity which is the barometer for an increase in wages.

Coming back to humans, there is something which Robo Advisors will not be able to replicate humans while advising clients…EMPATHY