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Making The Most Out Of ‘Algorithm’ Driven Financial Advice

Posted by : Premraj | Posted on : Thursday, February 13, 2014


The future of global finances has been linked with the virtualization trend and this sentiment has also been expressed in a Charles Schwab survey. According to the results, 45% of investors believe that online investment advisories is the top emerging trend for the next few years. With the availability of finance-savvy online tools, consumers can make use of ‘robo-advisors’ and also benefit from ‘algorithm’ driven growth.

Online models have penetrated finance at multiple ‘service’ points and increasingly influence the way people manage their monetary affairs. The service model starts off with an algorithm based investment advice followed by analysis of managed accounts, financial planning and budget management tools.

Benefits of algorithm driven investment advice

Analysts also infer that the online aspect lends a certain objectivity to the entire concept of portfolio management. As per estimates, using such tools, each user can save anywhere from $5,000 to $50,000. The saving comes from efficiency and error proofing within digital systems.

An example of such a facilitating model can be seen in the retirement savings industry where an ‘annuity analysis tool’ has been launched to facilitate people with appropriate advice. It simplifies the process of picking an annuity for all individuals using the tool.

And when it comes to the relation between nascent investors and online tools, it is mostly about impact. With so much diversity to choose from, the competitiveness has boiled down to alienating the good from the bad. A good account of this analysis can be seen in the Management Tools and Trends report for 2013.

As per the report, financial advice systems are gaining strength and have been lauded for their efficacy. The most interesting aspect was the fact that among experienced investors, tool consumption for financial advice was more limited than the ‘neophytes’ in the market.

The conclusion presents a predicament that experienced investors linked tool consumption with specificity and effectiveness, rather than jumping on to every latest tool fad. The usage is more steered towards ‘impact’ and cost effectiveness.

Tool consumption with expert financial knowledge is the ultimate level of ‘core competence’ that individuals and enterprise based finance can wish for. Furthermore, diversified products such as currencies, commodities and ETFs demand a ‘pro’ approach that can integrate with virtual tools, and this is only possible with the help of investment experts.

Generating ‘custom’ models

The info provided above lends credence to the utility of virtual tools as well as adopting a selective approach to their usage. An ideal modus operandi  in this regard would be to create a foundational framework of necessary tools.

The initial step is always about data generation and analytics. Individuals and enterprises both need a data management platform that can provide a database for all important financial aspects. The secondary foundation is based on functionality and is dependent on financial advice.

The selection of financial advice should be based on a hybrid model in which both algorithmic and humanistic aspects are employed. Experience and cost effectiveness should be the top most priority. Also, relevance is another area which can serve as a deciding factor.

Bottom line: investors can utilize both professional and digital resources to augment financial matters and make the most out of their investment decisions.

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