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Economy

Will Algorithms Make Financial Advisers Obsolete?

Financial advice from computers could help private investors make more rational, efficient and profitable decisions. But even if a human element is irreplaceable, the humans in the industry must adapt.

WALL-E Street
WALL-E Street
Marcial Rapela*

-Analysis-

SANTIAGO — Personal investors increasingly want more options and new models, and increasingly the search is for greater client participation. Many people want more flexible means of administering their investments, combining sophisticated but easy to use digital tools with the option of personal intervention when strictly necessary. Meanwhile, the pressures of regulators on the traditional model of wealth management based on charging commissions continues to chip away at the profits of financial firms and fund managers.

The current eagerness of investors to find alternative models has led to the rise of "robo-advisors" designed to make better investment choices and assure asset growth. The idea is to have computer algorithms assign, distribute and balance investments. These facilitate a range of operations like opening an account and presenting a balance of assets, and help people not just to understand their financial position but also improve their performance as investors. This can be crucial to help even small-scale individual investors save enough money for retirement, as they cut costs along the way with self-service features.

But where would this leave insurance companies, stock brokers and banks that have yet to adapt to robot advisory services? They run the risk of losing market share, both because loyalty to particular firms or managers is typically weak in this industry, and for the high distribution costs and low growth that have characterized the traditional wealth management model.

Data generated by customers is a gem that can be used to guide these firms toward new models. Established firms have enormous quantities of information about their customers' incomes, expenditure and savings as well as back information on what they like or dislike in their banking experience. They need to develop capabilities for extracting data useful to selecting groups potentially most receptive to robo-investment, but also able to identify when a person is experiencing an event with major financial consequences, like the birth of a child.

A hybrid boost

Robo-advice can reinvigorate the financial advisor community. The best such advisors value their relations with clients, but would face a threat to their earnings by the hybrid model. The transition toward a new model should preferably be fluid, not abrupt, for investors and advisors alike. Many of the latter are already welcoming new technology, which allows them to visualize different investment strategies. Also, automating routine interactions like change of details or address can help both sides devote more energy to more important interactions that boost productivity and wealth.

Along the same lines, modifying the price structure may also prove beneficial. Firms currently charge fixed fees for asset management, or commissions on operations, and this may not suit the "robot" model. The main fund managers have a range of prices and even perform some operations for free. They might consider which of their free services they would abandon with the onset of the automated model, and seek new sources of income to compensate the loss.

All asset managers will finally have to boost their IT capacities to improve the client's experience. An example is adopting fast developmental processes and cloud infrastructure for rapid information transfer, and to cut costs.

A good "hybrid" model should quickly win itself an important market share. As technology improves, more customers will find it valuable, and there is no reason why firms should not see this as a source of new business opportunities.


*The author is a consultant at Bain & Company in Chile.

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Geopolitics

Minerals And Violence: A Papal Condemnation Of African Exploitation, Circa 2023

Before heading to South Sudan to continue his highly anticipated trip to Africa, the pontiff was in the Democratic Republic of Congo where he delivered a powerful speech, in a country where 40 million Catholics live.

Minerals And Violence: A Papal Condemnation Of African Exploitation, Circa 2023
Pierre Haski

-Analysis-

PARIS — You may know the famous Joseph Stalin quote: “The Pope? How many divisions has he got?” Pope Francis still has no military divisions to his name, but he uses his voice, and he does so wisely — sometimes speaking up when no one else would dare.

In the Democratic Republic of Congo (the former Belgian Congo, a region plundered and martyred, before and after its independence in 1960), Francis has chosen to speak loudly. Congo is a country with 110 million inhabitants, immensely rich in minerals, but populated by poor people and victims of brutal wars.

That land is essential to the planetary ecosystem, and yet for too long, the world has not seen it for its true value.

The words of this 86-year-old pope, who now moves around in a wheelchair, deserve our attention. He undoubtedly said what a billion Africans are thinking: "Hands off the Democratic Republic of the Congo! Hands off Africa! Stop choking Africa: It is not a mine to be stripped or a terrain to be plundered!"

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