Robo-advice algorithms

SallyG

http://www.professionaladviser.com/professional-adviser/news/2441322/robo-adviser-moneyfarm-hires-google-manager-in-uk-push
"MoneyFarm offers an online and app-based service backed by a set of algorithms, which create a personalised solution for clients with a view to achieve certain investment returns."
So they know which investments will produce say 6% a year for the next 20 years?

masonic

"With a view to" means having the intention to achieve
I think "certain" in this context means a subset (e.g. 'certain journalists could word their articles more clearly').

So, all I think this statement means is that they are able to offer personalised solutions that do not all target the same rate of return. How profound.

dunstonh

Historically, algorithms have resulted in too high a failure rate for advice provision. However, robo-advice is coming in not be a replacement for advice but effectively a half way house where you fill in some questions, it will plonk you in a risk profile on a pre-built portfolio and then you have access to an adviser in a more informal style relationship.

So they know which investments will produce say 6% a year for the next 20 years?

Stochastic modelling making assumptions. Many advisers use them to give an indication of poor return, average return and good return. Typically it covers 95% of scenarios. Each risk profile can show a stochastic modelling projection based on the underlying assets.

Dan83

If 1 of these algorithms know how to produce 6% a year for the next 20 years it's must be some kind of time machine, because we can only predict what happens in 1hr, never mind 20yrs

dunstonh

because we can only predict what happens in 1hr, never mind 20yrs

Not sure we can even claim to predict one hour as things can change in minutes. All we know is that we dont know.

However, these are not predictions. They are assumptions based on historical data, current pricing, economic conditions and regulatory guidance.

Eco_Miser

We can predict what will happen in 20 years, however the margin of error is rather large.

It is certainly possible to pick investments that will provide a specified return over 20 years. Not as high as 6% though.

TheTracker

Algorithm - a set of rules that solves a problem given circumstances and objectives.

Calculators, aircraft, self driving cars all use algorithms.

So does a chef, an IFA, and a DIY investor.

The 'electronic' versions, of anything, become prevalent when they offer a quality/cost trade off that is competitive with the 'non electronic versions'.

The poor old IFA is tomorrow's bank teller.

JohnRo

TheTracker wrote: »

The poor old IFA is tomorrow's bank teller.

As are the driver, pilot, and a boat load of other jobs and professions.

It makes you wonder just how it's all going to end.

masonic

Dan83 wrote: »

If 1 of these algorithms know how to produce 6% a year for the next 20 years it's must be some kind of time machine, because we can only predict what happens in 1hr, never mind 20yrs

As you increase the timeframe under consideration, the probability of achieving a minimum return from a portfolio of investments increases. Over an hour, you are just as likely to lose money as gain it. Over 20 years, an annualised return of 6% is much more achievable.

TheTracker

JohnRo wrote: »

As are the driver, pilot, and a boat load of other jobs and professions.

It makes you wonder just how it's all going to end.

Why would it end? They'll all be replaced just like the weaver, logcutter, shoemaker largely was. I certainly dont think my grandchildren will drive cars, the cars will drive them. A pilot these days is a glorified bus driver. And don't get me started on train drivers.

Instead of becoming IFAs the best of those brains will turn to being active in the improvement of the technology that replaces them. The others will not.

Linton

TheTracker wrote: »

...

Instead of becoming IFAs the best of those brains will turn to being active in the improvement of the technology that replaces them. The others will not.

Surely, the essential skill of of an IFA isnt creating clever combinations of investments. If the requirements can be put in a form usable by software to generate a portfolio, then the rest can perhaps be done automatically fairly effectively. Where an experienced human is required is to understand what the key requirements are from the unfocussed statements of the customer, to extract more detail where necessary, discard the noise, and to explain the conclusions in a way the customer can understand.

A GP cant be replaced by an expert system that knows everything there is to know about every disease and is capable if dispensing the appropriate drugs. I suspect that a patient who turns up with a random collection of aches and pains would be told they have some obscure tropical illness or perhaps it was all their imagination. The human compassion and reassurance which is what a patient may really be seeking could be somewhat lacking.