I’m calling B.S. on A.I.
Sitting on the #Fintech panel at today’s ASIFMA capital markets conference in Hong Kong, I had a small epiphany. Or minor brain malfunction, not sure which.
We need to stop talking
about #Artificial Intelligence.
By “we” I mean anyone involved in Finance or Fintech. Shut. Up. If you work in a field with real A.I. applications such as image processing, robotics, industrial automation or such, keep pretending like you know what you’re talking about. Carry on.
machinelearning
Why are we even talking about A.I. in the first place? I blame investors. To the lay man, which let’s face it most investors are, A.I. sounds magical. A bit of magic turns a regular business plan into the next big thing. It’s like “Turbo” in the 80’s. “eAnything” in the 90’s. “Big Data” in the 2000’s.
A.I. is the new Big Data
Nobody knows what it is, but everyone thinks it’s good, and therefore claims their doing it. The next time you’re at a startup pitch session, make a count of how many have the word “#machine learning” on a slide. It will be high. Then ask them how many of their staff have experience in Neural Networks. It will get quiet. It will be awkward. They thought no one would ask.
Algo is not A.I.
The reason a lot of these companies are tagging their selfies with machinelearning is that they have some cool algorithm. Sweet I.P. bro! News flash: algos are not intelligent. Algos take in data that you hand-picked, and probably pre-formatted, complete some operation you specified explicitly, and produce results which are predictable. Intelligence is not predictable. Intelligence does whatever IT thinks is best.
The reason we should stop talking about A.I. in the context of Finance is really simple. Would your compliance department be comfortable with the idea, that nobody knows exactly what decisions are being made with your customers money? And the regulator? Yeah, thought so. That’s what artificial intelligence means. You don’t want that. You can’t handle that.
Great for gambling
If the only thing you care about in the world is investment performance, then sure get into A.I. and go all in. In a zero interest rate, semi-efficient global market opportunities for outsized returns are like needles in a haystack. So to justify a typical hedge fund fee of 2+20, which is two percent of all your money every year, plus a fifth of any returns you make, you need to be creative. What’s more creative than an intelligent machine? Probably a human, for now, but stick with me here.
You new fund managers
Most hedge funds are increasingly becoming tech companies. Less suits and cigars, more t-shirts and pizza. They’ve been doing creative things with data and algorithms for years by now. So the next logical step is to take off the leash, and let the algos run. Stick a brain on that sucker and see what happens. Let them consume data you can’t even understand, and make hundreds of decisions that don’t make any sense, each second, on your real money. I’m sure it’ll turn out just fine.
It was never about performance
Here’s the thing though. None of that applies to regular people. None of it. Regular people don’t need to beat the market. In fact, most shouldn’t even invest. There, I said it.
Here’s an example.
Does Average Joe really need to roll the dice to get 15% annual returns on his $500 of savings? He could lose everything, or gain $75. Worth it..?
Instead, we could just help Joe save $500 each month off his salary, by optimizing his spending and putting him on a savings plan. Zero risk, for a “return” of 1,100% over the same year. Ah. Mazing.
Which is better for Joe?
Spender to Saver to Investor
This is what drives me nuts about #Robo-Advisors. They’re supposed to make wealth and advice accessible to the masses, by offering something simple on your smartphone for a minimal fee. It was never about outperforming the market! Joe doesn’t need your fake A.I. or your risky algo strategy!
Robo should be about financial inclusion. Making wealth accessible. To everyone. Here’s the tagline of Singapore based Bambu:
We turn Spenders into Savers into Investors
Don’t assume people need complex investment products. Regular people need to spend less at Starbucks, and save for a rainy day. School fees. A home. Retirement. Those are real things Joe needs.
[linkedinbadge URL=”https://sg.linkedin.com/pub/#aki-ranin/8/b9b/719?trk=cws-ppw-member-0-0″ connections=”off” mode=”icon” liname=”Aki Ranin”], is Commercial Director at Tigerspike and this article was originally published on linkedin.
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