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Automation & AI in Financial Planning

The existence of Automation and AI have been long judged about their abilities to do whatever the human mind can think of and maybe even what they can’t and thus they are judged about their usage. Is it a good thing or a bad thing? Debates, Lawsuits, Arguments, and whatnot. Automation and AI are also considered as a curse along with a boon and thus the existence of both is what concerns many. Gen Z Generation is pretty much more reliant on it and in the same way, is pretty critical about it. But whatever it may be, a curse or a boom, I am no one to tell you.

But what I am about to discuss today, is probably less discussed and more tried onto. At least automation and AI are discussed if not Financial Planning with them. So, you know about Financial Planning right? If not, here’s a quick one-liner for you to understand Financial Planning.

“Financial Planning is planning for the future you aspire to achieve financially, today”

And you might also know Automation and AI. So, Automation and AI are meant to make our life much easier, convenient, and make us more efficient so that we can focus on what is important and leave unnecessary work to a machine or a device that would happily do that for us. So what if Financial Planning which is an involving activity, where you need to keep track of each aspect of your money would be done by a system or AI? I mean sure we have human beings, aka Financial Planners to take care of these things who will help you throughout the process and will also keep a tab on your activities that involves money and would guide you through all the important steps of your life. But what if this task is taken up by a robot aka a Robo Advisor who will take care of these things? Wouldn't it be nice? But what is a Robo Advisor?

A Robo Advisor is an AI system designed to provide Robo Advisory.

Robo-advisors or Robo-advisers are a class of financial advisers that provide financial advice or investment management online with moderate to minimal human intervention. They provide digital financial advice based on mathematical rules or algorithms. These algorithms are designed by financial advisors, investment managers, and data scientists, and coded in software by programmers. These algorithms are executed by software and do not require a human advisor to impart financial advice to a client. The software utilizes its algorithms to automatically allocate, manage, and optimize clients' assets.

So Robo Advisory is a digital advisory that is conducted by a Robo Advisor who is in turn designed by Financial Planners, Data Scientists, and Programmers. Sounds cool. These are meant to eliminate human errors, provide faster services, and as this accelerates the efficiency of Financial Advisory, a wide number of clients can be reached out to, thus reducing the cost of Financial Planning to the client. Robo Advisors are designed to reduce the workload of an individual planner and by enabling him/her to provide services to a larger group of clients. While on the client's end Robo - Advisors would help the client solve little details without actually troubling a human plus it can be conducted at any point of time eliminating the time constraints of planners as well as the client. Clients just need to feed in relevant data of their financials and the Robo Advisor would take care of the rest. It will suggest to you various steps after that, that you need to apply to. Also, it would also suggest recommended products to invest in and also provide the option to invest there. It is a dream come true for certain. They don't need to contact an actual human or talk with them about their finances and thus would be more comfortable and precise about it reducing the erroneous reporting of data from the client's end. Gen Z loves to talk with a Machine rather than a human being literally and it is like they have been provided what they needed exactly.

But all seems good when it is going well. But this is Financial Planning and money we are talking about. It is more emotional than about intelligence. Personal Finance is 80% Behavioral Finance and 20% Intelligence. And what is behavior? Our emotions and our reactions to various situations be it shock incited or pressure incited or led by any other emotion. And every person has a different version of reaction to the same situation. Heck, even the same person reacts differently when presented with the same situation at a different amount of times. And the last time I checked, AI is still yet to work on dealing with human emotions. Let's say things go haywire and the client reacts differently than 'statically determined to react this way', what if there's a sudden change in the clients' situation like a pandemic occurs and things go off-road? Will algorithms be able to match the void? The algorithms work on the basis of data you feed them to, what if a client misfeeds the data or misses a certain aspect? Financial Planning is all about Emotion.

A Planner needs to understand the feeling of their clients. A Planner needs to understand what he/she feels about money or financial growth. Money is too personal and thus Planner needs to break the awkwardness or the barriers that prevent a client from sharing true details. True Financial Growth can only be achieved when the Emotions of the Planner and the client matches. Emotional Intelligence is of utmost importance and that is something that cannot be achieved by a Machine or an AI. Intelligence can be created but not creativity. And this is what a Robo Advisor cannot achieve, "A Truly Customised Financial Planning Service."

Robo Advisors are good, really good but to a certain extent. While it fills the gaps that a human planner possibly cannot fulfill, it also creates a gap that can only be fulfilled by a human. So it is not that, Robo Advisors are bad and Human Financial Planners are good and vice versa. A level or a system of Financial Advisory where Human Planners and Robo Advisors can co-exist has to be developed so that each of them works to complement each other and not replace each other. Both should work to eliminate each other's errors to provide a better functioning, efficient, and faster ecosystem. The end result should be increased transparency and quality of services that the client receives. The rest can be figured out. Till next time.....


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