The fintech revolution will change the financial services industry in the months, years, and decades ahead. But does fintech pose risks to certain jobs in the investment management industry? It does.
Does it mean the financial services industry must embrace fintech as an inevitable and important component of the industry's future? It most certainly does.
Clearly, the innovators need not be concerned. Visionaries, data scientists, entrepreneurs, computer programmers, and those specializing in analytics will flourish. With new frontiers come new opportunities.
Advice, financial products, and client solutions are more than data and computing power, however. The talent of the future will need to harness artificial intelligence to supplement human intelligence — not replace it.
Robo platforms are projected to exceed $1 trillion in assets under management in the next few years –- with one estimate at $4 trillion by 2022. And robo advisers are striving to deliver goals-based advice tied to asset allocation decisions.
This has typically been the purview of advisers, both retail and institutional. It is also a vision of the future that fits perfectly with what we, at the CFA Institute, believe in an investment industry that is geared towards providing solutions to clients rather than one that sells products to customers.
Robo Benefits
I have met with many firms behind robo advisers over the last few years, and many are using computer power to better help underserved groups — female investors, for instance.
These are incredibly positive developments as they are increasing our industry's market penetration, furthering investor education, and deepening the range of financial tools available for the average client.
These platforms provide tools that can assist people who might lack access to human advice. Many young investors and small account holders are not "profitable" enough to warrant personal advice in face-to-face interactions. Indeed, some larger wealth managers have pushed such accounts to call centers and technology platforms.
Financial services firms remain under cost pressures. The challenge for them is to use fewer people to achieve more by changing the roles played by people and technology.
Tough decisions therefore lie ahead. Where can investment management professionals make the most impact? Should firms "write off" certain accounts and let them migrate to new fintech homes?
How will wealth and asset management firms combine both people and technology in their business models? Will certain client segments prefer human interaction and will this preference change with the generations?
While the rise of fintech may look like a shiny new thing, computer models and asset allocation tools have existed for decades: plug variables into a model and an asset allocation plan emerges -– be it for small investors or multi-billion dollar portfolios.
Monte Carlo simulations, powerful computer models used to predict price movements and thus enhance investment decisions, arose out of the Manhattan Project and were later applied to finance in the 1960s.
What's different is that while the models of the past were tools for Ph.Ds and MBAs, today's fintech brings computer modeling to the fore in a dramatically simplified fashion for the end user.
Industry Challenges
