Financial Advisers Disrupted By AI (bloomberg.com) 71
schwit1 writes: Banks are watching wealthy clients flirt with robo-advisers, and that's one reason the lenders are racing to release their own versions of the automated investing technology this year, according to a consultant. Robo-advisers, which use computer programs to provide investment advice online, typically charge less than half the fees of traditional brokerages, which cost at least 1 percent of assets under management.
And who trusts Financial "Advisors"? (Score:4, Insightful)
And who trusts Financial "Advisors" - regardless of if they are human or AI?
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Do they work as well as a voice recognition based phone tree?
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Re:And who trusts Financial "Advisors"? (Score:5, Informative)
Well, financial advisors have often (not usually, but often) been out performed by random number generators. So it shouldn't be hard to do better than they do.
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Re:And who trusts Financial "Advisors"? (Score:5, Informative)
To make big money it's a combination of being at the right place at the right time and step on quite a few toes.
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Well, financial advisors have often (not usually, but often) been out performed by random number generators. So it shouldn't be hard to do better than they do.
He then compare these financial advisors to a random number generator and concluded it is not hard to do better. Hence, if it is not hard to do better, suffice to do a little better to accumulate large amounts of money. I repeat, he said it shouldn't be hard. I am just wondering why he isn't wealthier than the wealthiest people living on Earth in that case. He should rush to invest his money accordingly to his scheme doing a bit better than
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Well, financial advisors have often (not usually, but often) been out performed by random number generators. So it shouldn't be hard to do better than they do.
He then compare these financial advisors to a random number generator and concluded it is not hard to do better.
And you set a handful of billionaires as the standard for outperforming a financial advisor. Over the past 90 years, the stock market has returned about 9.5%/year. Mutual funds over that period return about 7.5%. Some of that difference is because fund managers salaries come out of your gains. Some of it is because they are not actually any better at picking winners and losers. That extra 2%/year isn't going to turn Joe the Plumber into Warren Buffett, but it's good for an extra 50% total return over 30
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There's a number of reasons. The top one is that I'm unwilling to devote significant effort to following the stock market. A large secondary reason is the cost/trade overhead. And just about as important as the other two is that if you don't have enough money to risk losing it, you don't take long odds.
None of these apply is you're handling other people's money. I doubt that most financial advisors follow their own recommendations...even though they might believe them, because the risk of losing is more
Re:And who trusts Financial "Advisors"? (Score:4, Insightful)
lack of seed money, most likely. After all, 3 of those 4 got rich doing something other than managing their portfolio, and Warren Buffett is at the very high end of adviser skill (based on performance) and still took a long time to get to where he is.
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What rate of return do you think you can realistically generate, and for how long? The S&P500 inflation adjusted Compound Annual Growth Rate (CAGR) from 1980 to 2015, including dividends, was 8.13%. If you invested $10 in a passive index fund in 1980, then you would have $166.60 by now. Maybe you are a rockstar and can double that rate of return, every single year. Then you end up with just under $2000. Feeling rich yet? But if you invested $10,000 in a passive index fund in 1980, then you would have ov
Re:And who trusts Financial "Advisors"? (Score:4, Insightful)
a) you do not know if he or she is not wealthier than one of them (or if he is one of them)
b) the listed people had different profit gaining careers which are not necessarily only based on financial trading. For example, Bill Gates started a software company and got a large loan from his parents.
c) In a large enough group it is statistical possible that players with the same capabilities, but subjected to a random environment will end with different amounts in the end.
d) Also if the average advisor is not better than a random generator then there still can be an advisor or player who is better than average who will earn a fortune.
e) To get really rich, you must understand the financial market. but you also need an advantage by having a special insight in the market and most importantly politics (as politics define the rules of the game).
Re:And who trusts Financial "Advisors"? (Score:5, Funny)
I am reminded of the line from a W.C. Fields movie. A guy sits down to play cards with him and asks, "Is this a game of chance?"
Fields answers, "Not the way I play it."
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a) you do not know if he or she is not wealthier than one of them (or if he is one of them) b) the listed people had different profit gaining careers which are not necessarily only based on financial trading. For example, Bill Gates started a software company and got a large loan from his parents. c) In a large enough group it is statistical possible that players with the same capabilities, but subjected to a random environment will end with different amounts in the end. d) Also if the average advisor is not better than a random generator then there still can be an advisor or player who is better than average who will earn a fortune. e) To get really rich, you must understand the financial market. but you also need an advantage by having a special insight in the market and most importantly politics (as politics define the rules of the game).
Point a) seriously, this is totally irrelevant everyone on this planet would know if that guy would be wealthier than all these other guys I listed together making is fortune by investing money beating a random number generator on the financial market.
Point b), again irrelevant. I never claimed the mean to accumulate money should be compared to Bill Gates or whoever else. I just mean if you can beat the market every time because he claimed it is possible to do better than a random number generator and it
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Also important, the goal isn't to beat a PRNG. The goal is a steady increase in profits with diversity and a good long-term investment strategy that will make your money work best for you in the long run. It's a race, that's true. It's an endurance race, not a sprint. Now that I kind of know what I'm doing, I regularly exceed the growth done by my investment manager - I've two portfolios, one is the one I "play" with. However, to make the percentages I make, I need to take risks that I'd fire my investment
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it's been proven many times that a lot of FA's are a fraud who take your money and invest it in indexed funds or buy the indexes.
Doesn't that make them better than the average financial adviser?
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My challenge makes much sense. Prove us it is not hard to beat a random number generator on the financial market. The proof implies you are constantly making yourself wealthier each time you make a move on the market.
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So, why aren't you wealthier than Bill Gates, Warren Buffet, Sergey Brin, Mark Zuckerberg together?
Probably, because THEY did not use Financial "Advisors"...
Re:And who trusts Financial "Advisors"? (Score:5, Informative)
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Question - "Who or what can make more money with my money without me having to do a damn thing".
Answer - "Who or what has a proven track record of accomplishing that goal.
Except past performance is no guarantee of future results. This year's hero is next year's bum.
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Except past performance is no guarantee of future results.
Once you subtract out fees, past performance is not even correlated with future results. You should pick the diversified fund with the lowest fees, which means an index fund. That is the right choice for 98% of investors. The other 2% don't need advisors.
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Proven track record doesn't say everything. If there are thousands of advisors that all give random advice, there will be some that will do much better than others. Following those will still give you random advice.
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Re:And who trusts Financial "Advisors"? (Score:5, Insightful)
And who trusts Financial "Advisors" - regardless of if they are human or AI?
I trust Bogleheads. [bogleheads.org] Financial advisers are really just salesmen.
Re:And who trusts Financial "Advisors"? (Score:5, Informative)
Investing in a diversified selection of index funds and staying the course will beat that vast majority of professional advisers. And the few advisers that will beat the market are not identifiable ahead of time.
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Investing in a diversified selection of index funds and staying the course will beat that vast majority of professional advisers.
While this is certainly true, I do think there is some use for professional advisers, especially if they participate in financial planning (as many do), rather than just managing investments. (If they only do the latter, you really have an "investment manager," rather than a financial adviser.)
Several years ago I was convinced by my spouse to go talk to one of these people. We had a recommendation from a family member who is in the financial sector. What was useful was NOT the possibility of ongoing in
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Instead, the utility of financial advice was the overall state of a person's financial "health" in general, and how to get things organized. Stuff like assessing whether you have an adequate liquid "emergency fund," whether you have enough insurance (and of what types), whether you are saving enough for retirement, for kids' education, etc., how to approach making major financial decisions/investments, how to diversify types of assets and accounts to maximize tax advantages, etc.
This is among the most insightful statements in this thread. There are no secrets to financial success - at least in the sense of getting through your life with enough money to retire. Everyone knows: spend less than you earn; invest; diversify; patience. It's like maintaining a healthy body weight: eat less than you exercise; moderate the sweets.
We all know these things, but sometimes it helps to have a coach. An impartial voice to let you know whether you're fooling yourself about your savings rate or y
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Me? What was awesome was that my bank actually sent me one, up to eight hours a day and I could call them any time I wanted (they said), when I sold my company. They sent me one for two weeks, free of charge. They went over a lot of things, helped me find a lawyer and a second accountant, and worked with me through the process of getting things started.
They gave me advice, not orders. It was pretty sound advice. I didn't take all the advice but it was sound advice. There was a lot to cover and not a whole t
More interesting is Age Adjusted Funds (Score:5, Informative)
A lot of American and Canadian retirement accounts are in "age adjusted" funds, which are really just a mix of mutual funds or ETFs of bond funds and stock funds.
If you check, you'll find most large firms have an S&P 500 index from Vanguard or Fidelity (like the VINIX) which has an expense ratio of around 0.02 or 0.04 percent, and a Total Stock Market index with an expense ratio of around 0.05 or 0.07 percent and a Total Bond Market index with an expense ration of around 0.10 or 0.12 percent.
You could replace the "age adjusted" fund that charges you 0.40 to 0.65 percent with an automatic stock fund and bond fund allocation, e.g. 70/30, and then just reallocate periodically. Cost to you drops from 0.40 to 0.05 percent, in many cases.
That's all these "wealth firm robots" really do. You can buy the underlying components and pay less.
It's the fees that kill you. You don't notice them when returns are 12 percent, but when the market is crawling (like today) with 1-2 percent returns, you sure notice the fees that siphon off up to 1/4 of your earnings.
Re:More interesting is Age Adjusted Funds (Score:4, Informative)
Excellent post.
Also keep in mind that many people are "retired" for 20 to 40 years. Most advice from "wealth managers" is what people want to hear rather than what will help them. Diversify, Active Managed, Wealth Preservation - it really only amounts to them skimming more money off. Fees and real inflation reduce the value of your money faster than you spending it.
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5% returns over the last 3 months loooooooooooooooooooooooooooooooooooooooooool please show me your crystal ball!
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What? That happens all the time. Happening *consistently* on the other hand....
Is this worth my time? (Score:1)
You don't notice them when returns are 12 percent, but when the market is crawling (like today) with 1-2 percent returns, you sure notice the fees that siphon off up to 1/4 of your earnings.
Um...
Yeah, it's terrible because the fees are comparatively large when the market isn't doing good.
But, it's really *great* when the returns are 12 percent, ya know?
What's the overall return? Is it really worth my time to figure out the financials?
My Fidelity account manager mentioned that my account had a growth of 7% over its lifetime.
Should I really take the time to figure this stuff out, try to beat that figure, worry about making the wrong move at the wrong time (and losing a lot), and try to compete w
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I stopped when I hit the 7% and I realize I'm just some guy on Slashdot. 7% is fine, nice and safe, and smart. Don't touch it. Don't fiddle with it, don't poke buttons, don't start watching the financial news, don't start reading the industry magazines, don't start doing you own work and watching stock tickers. Don't do it...
If you do do it then don't be greedy and get out when you can - but make sure to invest long-term (depending on what you're doing) as you're taxed at a lower rate. So, find a few intere
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I know splitting between equity and bonds is a typical allocation strategy, but I really feel like any bond holdings are inappropriate if you're not planning on retiring in the next ten years. The rule of thumb was always ten percent more bonds every ten years closer to retirement, but I feel like that's much too conservati
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I know splitting between equity and bonds is a typical allocation strategy, but I really feel like any bond holdings are inappropriate if you're not planning on retiring in the next ten years. The rule of thumb was always ten percent more bonds every ten years closer to retirement, but I feel like that's much too conservative.
I agree, my personal mix is 90 percent S&P 500 index, 5 percent MidCap, 5 percent Bonds. When I'm about 5 years out, I'll convert some more to bond funds, but sadly most of these age adjusted funds have a heavy overweight on bonds, for some reason.
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I've been using the same strategy for 20 years now based off Harry Browne's Failsafe Investing. 25% each in S&P 500, Cash (FDIC Money Market), 25-30 year Treasury Bonds, Gold Bullion Coin (Eagles). Every year rebalance if any one goes +/- 10%. New additions go to cash.
That's it. Very simple, good long term returns 10% and low volatility. Even 2008 was a small gain.
oblig (Score:1)
Oblig Manna link [marshallbrain.com].
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Never heard of him before.
Story was a pretty good read though.
****This post contains spoilers****
I thought Manna was a bit on the extreme side on both outcomes.
In order of whaaa?
First 4GC, Inc. ok There are only 1 billion share in existence to start then the rest of Australia joined the company pop of au is only say 25 mil. While it mentioned kids throughout it did not mention how they were allocated a share of the resources of the company surprising as in the first part it mentioned they think the robots a
FutureAdvisor is free (Score:2)
Of course, they go heavy on international funds and REITs, and you can't have it tilt funds in the direction you want. But they encourage extremely low-cost index funds and seem to be a good option.
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Go away ... (Score:5, Funny)
You have been replaced by a small shell script.
Advisors? (Score:4, Interesting)
I don't understand why the term financial advisor is used when they are just salesmen. What advice do they provide other than, "you should definitely buy our products", or maybe, "I would advise you against closing your account with us"?
I have one retirement account that's managed and another where I self-direct the investments. My self-directed account has been out-performing the one where I have an "advisor". I know I would never in a million years go to him for financial advice and am just about ready to close that particular account.
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I don't understand why the term financial advisor is used when they are just salesmen. What advice do they provide other than, "you should definitely buy our products", or maybe, "I would advise you against closing your account with us"?
There is more to it than that.
How to Choose a Financial Planner [wsj.com]
Look for a financial adviser who is a certified financial planner (CFP). They're licensed and regulated, plus take mandatory classes on different aspects of financial planning. . . . Financial planners advise clients on how best to save, invest, and grow their money. They can help you tackle a specific financial goal—such as readying yourself to buy a house—or give you a macro view of your money and the interplay of your various assets. Some specialize in retirement or estate planning, while some others consult on a range of financial matters.
Don’t confuse planners with stockbrokers — the market mavens people call to trade stocks. Financial planners also differ from accountants who can help you lower your tax bill, insurance agents who might lure you in with complicated life insurance policies, or the person at your local Fidelity office urging you to buy mutual funds.
Anyone can hang out a shingle as a financial planner, but that doesn’t make that person an expert. They may tack on an alphabet soup of letters after their names, but CFP (short for certified financial planner) is the most significant credential. A CFP has passed a rigorous test administered by the Certified Financial Planner Board of Standards about the specifics of personal finance. CFPs must also commit to continuing education on financial matters and ethics classes to maintain their designation. The CFP credential is a good sign that a prospective planner will give sound financial advice. Still, even those who pass the exam may come up short on skills and credibility. As with all things pertaining to your money, be meticulous in choosing the right planner. . . .
A growing number of financial planners make money only when you pay them a fee for their counsel. These independent financial planners don’t get a cut from life insurers or fund companies. You might pay them a flat fee, such as $1,500, for a financial plan. Or you could pay an annual fee, often 1% of all the assets—investment, retirement, college-savings and other accounts—they’re minding for you. Others charge by the hour, like lawyers. . . . more [wsj.com]
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Similar situation. I started reading up on investing (books: The Boglehead Guide To Investing, Common Sense on Mutual Funds, The Boglehead Guide To Retirement, Where Are The Customers' Yachts?, The Little Book Of Common Sense Investing).
Now I have close to 80% of my funds managed personally and just over 20% under a guy my dad recommended to me 20 years ago.
My project for this year is to get rid of the guy. He never put my funds in tax-safe ways and has about $50k sitting in cash for a number of years.
I k
No AI, Just Standard Advice (Score:2)
Most of the people using these "Financial Advisers" and paying 0.5% to 1% of their retirement portfolio are only really getting standard advice that is available on just about any mainstream stock market 101 for retirement website. It really isn't worth the fee unless you can't be bothered to do basic reading. For financial advisers this is just a gravy train. There is no "Artificial Intelligence" behind it. You could get the same thing off of a simple spreadsheet.
The oncoming destruction (Score:4, Informative)
The oncoming destruction of the market will be the fault of shit like this and high-frequency trading run amuck.
A few numbers go "boop" and that triggers some insane sell-off, which cascades into further panic selling which triggers some out-of-band responses which lead to more extreme selling and/or buying...the much-vaunted "financial circuit breakers" fail or are overridden in a desperate attempt to salvage what little is left and by the time it's over the entire stock market will be worth the price of a used Buick.
You wake up to find out your retirement account will barely buy you lunch at McDonalds, but thankfully the hedge fund managers are still okay.
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by the time it's over the entire stock market will be worth the price of a used Buick.
The price of a used Buick? Wow. So....then I come along and buy the entire stock market and get rich off dividends? Sounds good to me!
AI?! a pair of dice would disrupt fin advisor.. (Score:2)
..nuff said.