Imagining advanced analytics and robo-advice
Dawn of a new day for investment management?
Most people think of dusk and twilight as being synonymous, but some formal definitions of twilight include the moments of light before sunrise also. It is this pre-dawn twilight that robo-advice currently finds itself occupying. The question is: Will robo-advice bring the dawn of a new day in terms of service delivery for investors, or will robo-advice be trapped in the twilight zone?
February 22, 2017
A blog post by Doug Dannemiller, Investment Management research leader, Deloitte Services LP and Rohit Kataria, senior analyst, Deloitte Support Services India Private Limited
Science fact. Some leading
You are about to enter another dimension, a dimension not only of sight and sound but of mind. A journey into a wondrous land of imagination. Next stop, the Twilight Zone!1
In the digital world, all the data about where we go, what we buy, where we dine, who we owe, and how we invest act as markers that we leave behind as we journey through life. With the help of advanced analytics, this data could be analyzed to identify the unique spending and saving patterns of each individual or household. Digital advice could become completely personalized, specific, and timely. As algorithms learn more about the client, the digital adviser could potentially make adjustments to client risk tolerances in comparatively tight time frames. This could be done through modeling and cohort comparisons to develop a deeper understanding of transactions in near real-time. Advanced models may even be able to recommend adjusting risk tolerances earlier than would normally happen in an investor/adviser relationship. These tools have the power to identify patterns of transactions that may reveal tendencies about the investor. This information purely used in the investor’s best interest could lead to fast and effective adjustments to the financial profile.
Another possibility, well within the imagination, is the potential to offer individually customized investment portfolios. Deep analysis of transactions has the potential to divulge the clients’ passions, in a detailed and unfiltered way. Investment portfolios that correspond to those passions could be pitched on a mass-produced, but customized basis. Imagine the
However, a potentially scary scenario could come from an advanced analytical review of all these transactions. This sort of detailed information misused is the fuel for a trip to the twilight zone, a place where investor data is breached or used in a way contrary to the customer’s best interest. This level of detailed information is the essence of personally identifiable information and could be used to manipulate or control customers. Such is the potential for the combination of complete financial transactions and advanced analytics.
Avoiding the twilight zone
Robo-advice is one of the more promising approaches for bringing 21st-century technology to the mass-affluent investor segment. It may very well be the dawn of a new day for investors. However, in order to avoid being trapped in the twilight zone,
What are your thoughts about the potential for a combination of advanced analytics and robo-advice?
Are mass-produced, individually customized investment portfolios a possibility within the next few years? Please reach out to us to share your wondrous vision of the future landscape of robo-advice.
1The Twilight Zone. “The Mighty Casey.” Episode 35. Directed by Parrish, Robert, and Ganzer, Alvin. Written by Serling, Rod. CBS, June 17, 1960.
QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The opinions expressed in QuickLook are those of the authors and do not necessarily reflect the views of Deloitte.