In 2020, Accenture published a survey report on US wealth managers. Over 80% of respondents expected AI to "fundamentally change" the industry over the next five years. One of the main reasons for this belief is that AI frees up advisors' time by managing investment portfolios without any of the biases described above that could hinder long-term success. Consultants can be confident that their AI partner will “staff the store” while they build customer relationships and search for leads. Not only does AI help with time management, but it can also potentially limit the risk of loss. Also, removing emotions can lead to wiser decisions, at least decisions that are not shrouded in one's own convictions or convictions. With machine learning, AI can track vast datasets and analyze them in ways that humans cannot.
AI can be designed to identify patterns that help improve data collection and analysis, which is often a resource-intensive feature for investment managers. Similar to bond yields, which typically have less volatility as they get closer to maturity, AI is more accurate on short-term investment horizons, where predictable market patterns are easier to find. AI seeks to find factors and trends that can go deeper than traditional stock picking methods. Since traditional factors are already included in many portfolios, it can be more difficult to find alpha through these traditional means. Once more people use the same strategy, it often becomes built into the price and price discovery breaks down. This does not mean that the current strategies no longer work. However, since many of these strategies only use a few inputs and rely on traditional methods, this may not be optimal.
This makes it possible to find new investment opportunities that may seem invisible to humans. Using input from multiple data sources, AI seeks to improve the accuracy of its predictions while remaining adaptable to new information. It does this by accepting multiple types of data and passing it through multiple nodes. In a matter of hours, AI can test millions of combinations and produce results that can be tested for viability. This is how AI is trying to find invisible investment opportunities that humans don't see. AI may not be able to tell if there will be electric cars in the future or if bitcoin will become widespread in the world, but it has the potential to optimize the stock universe and, as it learns, create a more flexible portfolio. Whether it's an impulse or value-driven approach, AI helps consultants stick to principles that have proven to work.
Consultants can rest easy knowing that AI can capitalize on this emotional edge (or lack of it) and invest in continuous rule-based logic. .