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The Rise of the Machines

The Rise of the Machines

According to KPMG, "more and more people will embrace self-driving investment products in the next 3 years. The business is expected to grow 68% CAGR to $2.2T by 2020". The rise of the machines is now well on its way and is expected to touch all sectors of the economy. In the context of banks and financial operations, automation takes the shape of robo-advisors. Here is what it might mean in the next 3 years for these businesses, their customers and their employees.

Investment Managed By Robots

Customer impact

From a customer point of view, "awereness of self-driving investment products such as robo-advisors is on the rise". According to KPMG, they are perceived to "provide more value than traditional advisory methods". They are thought to be more active, provide a sense of control and are accessible 24 hours a day. They provide dashboards and charts to help users understand what is going on and they transact on behalf of investors effortlessly. Their popularity is on the rise.

Business impact

Self-driving investment products like other AI products rely on algorithms to perform their work. These algorithms performs analytics and transactions on behalf of their masters. If the underlying information ingested to make the analysis is accurate and the method of analysis is appropriate, these robots tend to provide great value in the shape of accuracy, consistency and reliability of execution resulting in material time savings for their owners.

From an operational point of view, self-driving investment products such as robo-advisors take a back office role and provide advisory analysis, compliance and clerical value. For example "Morgan Stanley's uses COIN, a self-driving investment product designed to work on loan documents. The product is said to be able to complete 360,000 hours of finance work in just seconds". These tools allow the business to save on billable hours at an unprecedented rate.

Another important factor that drives adoption is scalability. Being a web application, robots can scale and work on behalf of thousands of users simultaneously. All that is required to scale is to add more computing resources and Engineers. On the operations side, it reduces the need for highly paid Investment Bankers, Lawyers, Traders, Clerks and Analysts and displaces enterprise needs towards Engineering jobs. On the retail side it allows the business to scale to service an unlimited amounts of customers.

In a robot minded organization, a business is able to operate a large scale operation with fewer resources while providing increased users and shareholders value. A great business model to be in considering that each robot can rake in transactional fees from millions of users while eliminating most of the work involved to manage these investments in the back office.

Given the benefits illustrated above, established players like JP Morgan, Charles Schwab, Vanguard, Merrill Lynch, Fidelity all have a vested interest in automating their business. To realize the vision of the frictionless business and to stay relevant in the information age, they invest heavily in AI technology.

Employee impact

Based on the evidence provided above, the increase in operational AI technologies will introduce massive jobs displacement in short order. According to The Guardian, "robots will eliminate 6% of all US jobs by 2021". Redundancy will be eliminated at all levels of employment and the remaining Analysts will be expected to take on increased responsibilities for a higher pay. The job descriptions will change to include product management duties and the need for qualified Engineers will increase.

Shareholders of the business however don’t necessarily see that their move towards automation is cause for concerns. Besides, they are not in the business of creating employment. Their purpose in life is to provide products and services for profit. Considerations for jobs displacement is not in their mission statement. It therefore is not a big factor in their decision making process. Efficiency is the main goal here and AI technologies provides unprecedented opportunities towards achieving that goal. “People always talk about this stuff as displacement. I talk about it as freeing people to work on higher-value things, which is why it’s such a terrific opportunity for the firm,” said Dana Deasy, Chief Information Officer at JP Morgan.

At the end of the day, experts all agree that automation will cause jobs displacement. This phenomenon is expected to accelerate in the coming years as enterprises from all sectors of the economy move towards automation. In the financial sector it’s already happening at a fast clip. Our institutions, both private and public are in the process of creating an accelerated displacement of jobs that will produce an increase in unqualified, unemployed workers. Some countries are better prepared than others to adapt to this new reality but in the US there are no safety nets to speak of and this conversation is just beginning to make its way to the board rooms of our governing bodies.

To adjust to the automation age experts urge us to prepare. At the rate we are going, it is possible that this trends towards automation will eventually result in a completely automated world within 20 years. A world where robots perform most services, grow and deliver our food and manage our finances. As fiduciary of an increasingly connected world, it forces us to rethink our way of life. Questions we should ask ourselves include:

  • Should we change the way we measure success for Companies to include community wellbeing in their charters?

  • Shouldn't large parts of business profits be reinvested in community salaries and infrastructure development?

  • Shouldn't Companies collaborate with one another instead of competing?

  • What will happen to the worker's way of life if there is no need for income?

  • What will businesses do if no one can pay for their products and services?

  • What does a day to day life without 'jobs' looks like? What do we do with our time?

  • What will happen to Government services once the amount of tax payers is reduced to a few rich tax payers?

  • How will people react if their institutions fail them in the transition?

In this exciting time in our evolution, and to ensure that we continue to thrive collectively, we will need to change our institutions goals and practices. We will need a more appropriate education system based on the development of self-esteem and self-actualization, guarantee revenue for all, and we will need to extensively collaborate with our global partners to adopt laws and policies adapted to the rise of the machines.