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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*


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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Netflix And Chills: The German Formula Of “Dear Child” That's Driving Its Success

The German thriller has made it to the “top 10” list of the streaming platform in more than 90 countries by breaking away from conventional German tropes.

Screengrab from Netflix's Dear Child, showing two children, a boy and a girl, hugging a blonde woman.

An investigator reopens a 13-year-old missing persons case when a woman and a child escape from their abductor's captivity.

Dear Child/Netflix
Marie-Luise Goldmann


BERLIN — If you were looking for proof that Germany is actually capable of producing high-quality series and movies, just take a look at Netflix. Last year, the streaming giant distributed the epic anti-war film All Quiet on the Western Front, which won four Academy Awards, while series like Dark and Kleo have received considerable attention abroad.

And now the latest example of the success of German content is Netflix’s new crime series Dear Child, (Liebes Kind), which started streaming on Sep. 7. Within 10 days, the six-part series had garnered some 25 million views.

The series has now reached first place among non-English-language series on Netflix. In more than 90 countries, the psychological thriller has made it to the Netflix top 10 list — even beating the hit manga series One Piece last week.

How did it manage such a feat? What did Dear Child do that other productions didn't?

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