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#Investments — 04.09.2018

Can Artificial Intelligence Help You Assess Your Next Investment?

Many industries have begun to utilize AI to achieve higher levels of productivity and better decision making. But what could AI mean for investors.

Can AI help you assess your next investment?

Artificial Intelligence (AI) refers to the creation of intelligent machines or software that can perform cognitive functions, such as solve problems or learn new information. A key advantage of AI is that it can quickly perform tasks or make decisions that humans find repetitive, difficult or time-consuming.  

A recent study showed that the Asia Pacific region leads globally in terms of deploying AI, with 48% of enterprises in the region claiming to actively use AI, compared with 39% in North America and 31% in Europe.

The impact of AI on investment management

It should be noted that the use of computers in investment management is not a new phenomenon. Quantitative investing, for example, has been around for years, and employs computers to make automated trading transactions at extremely high frequencies.

More recently, the industry has seen the introduction of “robo-advisors”, which are algorithms that generate a financial portfolio based on the goals, financial assets and risk tolerance of an investor.

However, quantitative investing and robo-advisors merely scratch the surface of what AI can do in managing investments. In the future, we can expect AI to exert a much more significant influence in this arena, due to its ability to, among others, manage big data. 

Big data analytics

Today, the amount of financial data available is astronomical and growing on a daily basis. Such data includes market trends, analyst reports, earnings numbers, news reports, corporate presentations, as well information from social media. Furthermore, the data is constantly being updated and refreshed. This large volume of evolving data is often referred to as “big data”. 

Wealth advisors rely on the processing of available financial data to devise sound investment strategies for their clients. However, due to limitations, only a part of these data may be processed by human at any one time.

On the other hand, AI, as computational power and storage space exponentially increase over the years, is capable of processing and analyzing these financial data simultaneously and/or speedily without being restricted by the same limitations of humans. 

AI has the potential to make superior investment decisions and predictions, since it can analyse across a whole spectrum of financial data, rather than only a small subset. It may even be able to identify patterns and correlations, because of its ability to evaluate the bigger picture.

AI can also utilize “machine learning”, which allows it to learn over time on how to make more accurate decisions and predictions, based on an evaluation of its previous performance. 

In the near future, we do not expect AI to completely replace the traditional model of investment management, but innovation and digitalization will continue to be the essential components of any strategy going forward.  We expect AI to complement face-to-face relationship management and make part of a complete client experience.

Human advisors will remain important

The emergence of AI in the field of investment management does not necessarily mean that human advisors will be made redundant. On the contrary, we expect that human advisor will continue to have an important part to play in the investment process although the precise nature of the role may evolve. 

For instance, while AI can process a vast amount of big data, not all of this data will be entirely relevant to the financial portfolio of a particular client. A human advisor will  need to filter out the noise and set the parameters of what sorts of data the AI should focus on analyzing. 

Human advisors will be required to interpret the investment any choices made by AI, explain to clients how and why such choices are beneficial and add a personal touch to the experience by catering for factors not captured by the financial data set. 

A critical human eye will be required to examine the decisions suggested by AI, to ensure they make sense. AI  could therefore be a co-pilot to human investment managers, rather than a replacement.

Disclaimer

This article does not constitute and should not be construed as an offer or solicitation to sell or buy any securities, investment instruments or any other services. Information and opinions contained in this document are obtained from public sources believed to be reliable, but are not to be relied upon as authoritative or taken as a recommendation or investment advice or in substitution for the exercise of independent judgment by the recipient, and are subject to change without notice. BNP Paribas makes no representation or warranty, express or implied, with respect to the accuracy or completeness of any information contained in this article. You should seek advice from your own professional adviser regarding the suitability of any investments (taking into account your specific investment objectives, financial situation and particular needs) as well as the risks involved in such investments before a commitment to purchase or enter into any investment is made.