Carmen Tyler, Head of Investment Solutions at Spring IM, explores the role of artificial intelligence and other tech-led solutions in investing.
Think automation, artificial intelligence and algorithms. This A-team is key in creating an effective and efficient process for every investor. Let us first consider artificial intelligence (AI) – crucial to our process at Spring IM. AI is commonly misunderstood, but it is all around us. Put simply, AI is a type of computer science concerned with building machines capable of performing tasks that typically require human intelligence. In general, AI systems work by consuming large amounts of data, analysing it for correlations and patterns, and then using these patterns to make predictions.This is how chatbots work. The chatbot is fed examples of text chats and can learn to produce seemingly human-like exchanges with people. In essence, AI can perform a number of tasks much better than humans, simply because the vast amounts of data involved would bury a human analyst. And that’s how our process starts – with vast amounts of data. We use a systematic investment approach, also known as data-driven or algorithmic investing. This method of investing uses data and technology to modernise the investment process and, by design, offers cost-efficient, risk-managed portfolios. We utilise the expertise of investment professionals, mathematicians and data modelling specialists to create computer model constructs (algorithms) in which to collate, analyse and optimise data from a vast universe of assets to drive our investment selection process. It lends itself to scalability through efficiency and, because of this, we are able to offer portfolios with low investment minimums and, furthermore, a low monthly savers option. By using an algorithm-driven approach, by design, data is placed before emotion, removing the human behaviour and the biases shown to negatively impact investment decisions. Emotional biases can be commonplace using a traditional approach such as herding (or ‘fear of missing out’), which is a tendency of investors to follow others without necessarily looking at whether the underlying fundamentals justify the decision. Furthermore, by taking a data-led, systematic approach, none of the traditional fixed splits are imposed – typically 60:40 of equity and bonds respectively. As we have observed this year, using bonds as a hedge against a decline in equity markets is no longer a viable option. With the drop in the bond markets, which fell in tandem with the equity markets earlier this year, the two assets have become correlated and so this traditional approach is no longer effective in providing a risk controlled portfolio.
Automation’s crucial role
For a technology-led investment solution to be truly efficient, automation is crucial. It is estimated that in the next 20 years, $30trn will be passed down to the younger generation, who will likely look to use tech-driven, automated solutions. And there’s significant growth in these automated areas. Wealth technology such as investment platforms that automate the trading, rebalancing and fee collection of portfolios are central to this process, and the approach we take at Spring IM. The A-team is not limited to simply the investment process. It seemed crucial to us to build our entire service to lead the way as the future of investing. And so we built an end-to-end, fully automated and integrated offering, including a client reporting portal (with daily data) and digital application and onboarding service. Through our AI-powered process, we ask customers a few questions to find out what type of investor they are and match them with a strategy that specifically meets their goals, whether that’s to preserve their money or take greater risks to grow their nest egg. As the world of finance evolves into this new technological age, there comes a greater demand on access to quality information. Instant access to one’s financial data is rapidly becoming a bare minimum, such as access through an app. The days of sending a paper valuation through the post three months out of date might soon be a thing of the past, although still a common practice today. The Spring IM client portal provides investors with sight of their portfolio at any time, enabling users to look in detail at how their investment is performing on a daily basis and see any other linked investment accounts. The client portal also enables parents to set up accounts that can be designated to their children, the future investors, helping them to develop their financial literacy. We offer a platform that enables everyone to become investors in global markets and, importantly, invest in a solution offering globally diversified, risk-managed portfolios. Through the use of technology, we increase not only the efficiency of decision-making but also the efficiency of processes leading to scalability and cost savings for the end client.