In recent years, artificial intelligence, or AI, has become one of the most talked about topics in investment management. AI will have a big role in the industry’s future; however, the full potential of AI has yet to be discovered. Below are some of the trends to watch in 2020.
Busting The ‘Man Vs. Machine’ Misconception
Today, AI has been strongly linked with automation — specifically, automating repeatable, low-risk tasks. That’s as simple as it gets within the AI landscape. Yet, the idea of automating a task traditionally completed by a human is intimidating. The environment of replacing human tasks with computers fuels the “man vs. machine” fire.
AI can make investment managers more efficient through better data easily accessed and understood. AI is about putting the right data at the fingertips of investment managers. This allows clients to be serviced faster and more comprehensively. The conversation around AI needs to be flipped to “man plus machine.”
Investment managers rolling out AI initiatives are needed to provide the leadership to quell job loss fears by having open discussions around how AI impacts, and ultimately helps, job functions. AI adoption is on the rise, and this will be the year “man plus machine” talk resonates.
The Melding of Front, Middle And Back Offices
The front, middle and back office will get closer in 2020. Inefficiency still reins in the daily operations. Processes are very linear and still follow many of the same end-of-day or start-of-day batch cycles. AI will be a key tool in eliminating this type of inefficiency. As this happens, the interaction between operating groups may evolve from a formal and linear handoff to a more real-time, enterprisewide collaboration model.
Changing The Way Investment Management Firms Make Money
The way investment management firms are making money is changing. One specific area of concern is the compression of wealth and asset management fees; as a result, services must be expanded and diversified. Wealth management firms are now providing more planning services and holistic management options. The industry is seeing the mix of revenue change.
Firms looking to diversify revenue streams are stressing the technology and systems they currently deploy, asking them to do more than ever. This shift in strategy is opening an opportunity to adopt new AI-based tools, which can boost the efficiency of services and optimize profitability.
One example of this trend is the emergence of direct indexing. A program can be used to emulate the function of exchange-traded fund, or ETF, providers. Investors now have an avenue to purchasing the ETF’s or mutual fund’s individual equities. Even though fees for ETFs and mutual funds are relatively low, a computer can lower these costs even more. Firms can pass along these savings to clients. With potential market volatility on the horizon, expect conversations this year about how to use AI to expand services or create more profitability.
The Next Decade Of AI: Targeting The Corner Offices
For the past few years, AI has been focused on automating low-value tasks to boost efficiency and eliminate avoidable errors. Once the low-hanging fruit has been picked, the new focus will be on making an organization’s highest-ranking and most expensive employees more effective. Here, AI has yet to have a true impact.
Globally, there has been an explosion in the DevOps space, which is all about developing tools to build, manage and test technology. The cost of software engineers is extremely high, and these tools can help everyone focus on high-value tasks. The investment management sector will be all about how to make the people who are managing money — the traders and portfolio managers — more effective so they can outgrow their peers.
AI is rapidly evolving, and at any point, there could be another breakthrough broadening how we envision the technologies’ future. There are some clear trends emerging that will impact investment management firms this year. We should all look forward to this fascinating journey.
This article originally appeared on Forbes.
