Would you trust your investment decisions on an algorithm that may or may not know you well enough? As machines are getting intelligent and smarter, they are encroaching the areas like personalized financial advisory and investment recommendations.
This area has been dominated by extremely knowledgeable and trustworthy individuals for many years, referred to as wealth managers or financial advisors. But as the stock markets are becoming less predictable, people are now trusting their money on machines rather than humans, or at least that seems to be the case with the recent successful launches of many robo advisors.
The traditional methods of acquiring customers through human advisors involves a high cost of customer acquisition. Because of this, a large section of the middle class population, who are capable of investing in securities, have been left under-advised, precisely a market that the robo advisors are aiming to capture.
Also the quality of financial advisors is falling in countries like India, where financial advices are solely given to receive kickbacks from the stock or fund providers, which is resulting in losing the trust of investors. Individual investors are busy and gullible, and often end up investing in poor performing securities, which in-turn impacts their willingness to further invest.
But robo advice is not an alternative either. How can people trust their hard earned money on a machine algorithm, about which they have no clue. Just building smart algorithms is not enough for the robo-advisors. They need to be ‘clever’, to be able to gain the trust of investors.
Trust can be obtained only when people exactly know why a certain security is recommended, and have the ability to compare various recommendations to take a final decision. Educating individual investors and empowering them with the ability to take investment decisions seems to be the only alternative to attract new investors.