Asked if a computer will ever be able to give better investment advice than a human, Oliver Bussmann does not hesitate.
"I believe it's possible," said Bussmann, who until March was the chief information officer of UBS.
Banks' wealth management departments and other investment firms are starting to adopt artificial intelligence. This is different from the robo-advisers you've probably heard about. Those have simplistic, rules-based models — you give them your age, risk tolerance, goals, and so on and they select a basket of exchange-traded funds for you. The next generation of AI in wealth management uses rules or models crafted by data scientists with Ph.D.s and master's degrees.
"They can come up with very sophisticated investing models, leveraging artificial intelligence technology, and potentially can outperform the traditional players," said Bussmann, who now has an eponymous advisory firm and is also a mentor at Level39, a fintech accelerator based in London. "With AI you can scan the available market data and understand events and triggers that change the market situation and potential performance of certain sectors, certain stocks. It's all about the ability to process a huge amount of data, define the rules and drive the right rules."
To be sure, overreliance on computer models has gotten the investing world in trouble in the past. High-frequency traders have at times caused volatility and flash crashes through their use of algorithmic trading. The quants (or quantitative analysts) who poured into Wall Street in the early 2000s were heralded for their risk and pricing models, which enabled firms to sell complex collateralized debt obligations to unsuspecting investors that turned out to be based on subprime mortgages. Computer models by themselves can only do so much.
For this reason, Bussmann says, it will always be important to keep humans in the equation.
Read the full article from the American Banker.