Humans vs. Machines: Who do you trust to handle your finances?
January 2, 2019 by Rocco Pasternak
There’s been an obvious trend towards automation in the finance industry over the last several years. But has this resulted in better returns for investors? Are humans better at dealing with natural human behavior (personal finance)? Will there be a trend back towards more tradition money management? Only time will tell.
An example of this trend towards automation is the Robo-Advisor. A quick search for Robo-Advisor companies on Angellist generated over 150 results. A Robo-advisor services a client’s investment or money management needs digitally, offering little to no human intervention. Robo-advisors started proliferating after the 2008 financial crisis, as investors lost confidence in Wall Street, coinciding with an amazing span of technological innovation.
According to Wikipedia, Robo-advisors had $224Bn Assets Under Management (AUM) as of October 2017. Early entrants, like Betterment, now have over $9Bn in AUM. Compared to the largest banks in the world, Robo-advisors still have a long way to go for mass adoption. While many of the big banks have Robo-advisor ambitions and products, traditional banking and investing still holds a majority of the worlds wealth. Just JP Morgan Chase alone holds $2.53 Trillion in assets as of February 2018, according to S&P Global Market Intelligence. Will finance keep trending towards automation, or will there be a natural pull back as we start to miss the quality and advantages of personalized human advisory?
There’s certainly an argument for human interaction in finance (and everyday life). Finances are inherently emotional. Robo-advisors can only handle robotic algorithmic processes (for now). The time will come when AI can both provide the human centered approach with the efficiency of a machine. Until then, there will be a need for the human touch.
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