Nov 01, 2018

Is artificial intelligence the next bitcoin?

By Joe Duran

Photo credit: Getty Images

Bitcoin has fallen almost 70% from its peak last year, from around $20,000 to roughly $6,500 currently. Breathless commentary about how bitcoin could become the next global currency has given way to sentiment that it's just another disappointing idea that has lost a lot of money for investors.

Today the new fuss in the technology world is about artificial intelligence and how it will change the world, and the wealth management business.

AI and Machine Learning

First let's clear up some of the confusion around nomenclature. Artificial intelligence is the concept that machines think and process new ideas by themselves, like the sentient computer Hal in the movie "2001: A Space Odyssey."

Machine learning is the process by which machines are coded to adapt their programming based on new data and data analytics; think self-driving cars and Google's targeted "smart" ads that intuit what you might be interested in based on the sites you've visited.

While we are still quite far from AI and a machine making up its own mind, we can't ignore the impact that smart programs powered by machine learning are making on the world. So here are a few perspectives on how to think about the impact of this technology evolution and how it might affect you:

1. All new ideas go through the innovation wave. Revolutionary ideas and technologies are seldom born and adopted in a linear fashion. Adoption of new ideas is far more likely to be wave-shaped: they launch to great fanfare, are typically expensive and underdeliver versus the expectations people have, leading to a period of disillusionment. Then over the next couple of years, the products get reimagined to be more effective. Eventually the best ones reach viable standards that lead to mass adoption. Artificial intelligence might be real one day, but machine learning is already quietly changing the world today by changing the way we use information.

2. Machine learning is only as good as the data it uses. Computers can process data, test hypotheses and course-correct in ways no human can. But all machine learning is based on the underlying data. The more you have, the more you can test and optimize. Firms like Amazon, Netflix and Google accumulate more data every day about individuals and their consuming patterns. The same will be true for the successful wealth management firms of the future, whether they are robo-firms, custodians, large retail firms like Vanguard or the national wirehouses and banks. Forget bitcoin mining, data mining has become the new gold rush.

3. AI is far away but machine learning is today.

Here are some of the ways in which machine learning could be used to help your clients and your business right now:

• Prepping for a client meeting, your system informs you of the three most likely concerns on your clients' minds, based on their current situation, before they have even come in.

• Machine learning can dynamically inform your clients of how the typical person has dealt with a challenge they are facing, and share what has worked best for people in their situation.

• Advances in machine learning can identify the ideal prospective clients before you have ever met them, based on their online behavior, and create a personalized offer that converts them into a client at the moment they should be working with a wealth manager.

While these examples and much more can feasibly be done today, there are two major impediments: Few firms have enough consolidated data, and the resources needed to invest in the technology are overwhelming.

Working with Machine Learning

Typical independent advisers today still keep most of their notes in yellow pads and perhaps transcribe them into notes fields that aren't searchable or quantitative. Heck, many don't even have a consolidated warehouse for all their data.

Even if your firm does not currently have the budget to invest in data analytics and machine learning, it is important to start categorizing and storing data in one place so that it can be used in the future.

The sooner your firm collects detailed client data, the more prepared you will be when scalable, lower-cost tools become available. If you don't have the data in a manageable location, you will never be able to use machine learning to improve your relationship with clients and grow your business.

Into the Future

Bitcoin might have been an intoxicating idea, but it's not anywhere as important as blockchain, the underlying technology that powers it. The same is true about artificial intelligence. It's an exciting idea, but nowhere near as impactful today as the machine learning that powers it.

Get an early start on harnessing this technology now by turning your insights about your clients into data.

This article originally appeared on Investment News “Duran Duran” blog.

Joe Duran

Joe Duran

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