For many in the financial services industry, IBM’s artificial intelligence technology, known as Watson, personifies the fear that machines will soon replace them.
The technology first captured the public’s imagination in 2011, when it won the television quiz show “Jeopardy!,” pulverizing the smartest human contestants the show had seen. It wasn’t even close.
And Watson was still a relative infant.
Since then, Watson has grown up and its capabilities are increasing by the nanosecond – literally.
Now the technology is being touted for what it could bring to the finance industry: payments, insurance, financial education and more. Earlier this year, Big Blue announced the launch of IBM Cloud for Financial Services, which gives fintech developers access to IBM’s interface and data in order to build apps quickly and at scale. The collaboration could mean new apps that have the potential to automatically track compliance data, read millions of pages of financial journals and media in seconds, and more. Unleashing the power of the cloud for developers will lead to stronger, faster and smarter technology.
But do humans in the financial industry have anything to fear from such new technologies?
We posed that question to Paolo Sironi, a thought leader for IBM’s Watson Financial Services and the author of the book FinTech Innovation: From Robo-Advisors to Goal Based Investing and Gamification. In an exclusive chat at this year’s Morningstar Investment Conference, he sat down with us and shared why advisors should actually be excited about technology.
There’s a lot of angst about technology in the industry. Do you think it’s justified?
“There is anxiety in the financial industry because the need for transformation is happening. But it’s not technology that is creating these needs. The reason why financial firms are anxious is because they are seeing their margins shrink progressively. Products they relied on aren’t as remunerative as they used to be. Interest rates are low or negative globally. The costs of trades and transactions have come down. Trust in the industry has dwindled, and the potential for costly regulation is rising.
“All of that makes for a tougher environment in which to do business. But none of those problems were caused by technology. And I would argue that none of those problems will be able to be addressed without advisors embracing technology.”
So what role does technology play?
“Technology offers the opportunity to change that story. Technology is the only way to make sure you don’t get pushed out of the business altogether.
“When margins are low, the only way to make sure you can make ends meet is to increase volume, work faster and smarter. Otherwise, there will be no business. And technology does that. It can augment human intelligence, helping people make better informed decisions, bringing data into the picture in a richer way that advisors and clients won’t be able to garner any other way, with the same efficiency.
“Advisors will be able to achieve a higher level of automation when it comes to costs and compliance and the monotonous parts of the job so they can focus on what they do best: developing the human relationship. That’s something technology won’t be able to do.
“Because of rising costs and falling margins, the industry in many ways is very polarized. On one side there is very expensive advice and services that only the rich can afford. And on the other side there are commoditized solutions, which are very bare-bones. Embracing what technology can bring will allow advisors to reach everyone trapped in the middle. The clients who had previously been deemed unadvisable because the cost to reach them was too great will be able to become customers. An advisor who embraces technology will remain relevant.”
What else will technology change?
“There will be greater emphasis on the value proposition and a greater personalization of services. That’s because when the more monotonous elements of the job become automated, the advisor has more time to spend with clients, helping them focus on their goals.
“We are seeing a shift in the industry towards goals-based investing. The client isn’t buying return. He or she is buying a risk management conversation and plan to reach his or her goals. The only way to do that successfully is to be able to spend more time with clients to see what these goals are, and to help them stay on track.
“As advisors know, the behavior of an investor can damage the investment more than the market itself. Technology represents a great way to educate clients without them feeling patronized. And it can help nudge them to keep their biases from taking them off their path.
“Tools to help educate the client in a way that allows them to experience finance in a more experiential manner will go a long way. More than just keeping track of investments, advisors will be able to use games to help their clients experience their finances in a way that is unique to the client.”
Won’t there be a steep learning curve for those who are not tech-savvy already?
“I bet most advisors, who are 50 years old or older, are already using a smartphone. They are already used to the technology. They’ll just be using what they already use in a different way.
“Learning the technology is not hard. When you’ve done something a certain way all your life, and now you have to do something different – that can be tough. But they already know how to use the technology. Interfaces are designed to be simple and intuitive. We are talking about touchscreens where users swipe or talking to chat bots that will answer a question you put into a search engine. The technology that will succeed will be easy to use, not Excel documents with formulas and functions. Most people use these technologies and interfaces in every other facet of their lives already. The next step is just deciding to change from practices that the industry has been used to.
“It takes a willingness to change. But it’s more of a cultural question than a technological one.”
Is there any aspect of technology that the industry should worry about?
“Honestly, no. Technology is here and technology will always be here. But humans still crave the human connection. You can always find a way to use technology to your benefit. And for the industry, it has the potential to solve many problems. There is no doubt that it’s becoming more expensive to advise a larger share of the population in the western world. Technology allows a win-win scenario.
“Advisors will be able to provide advice to a larger group of people, solve compliance issues, better educate their clients and generally offer more value so they can be more profitable. And people who otherwise would not be served will not be left out.”
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