Can AI Create A ‘Risk-Free’ Market

Advancements in artificial intelligence (AI), quantum computing and even further afield computer systems like (what the heck is this?) protein computing, DNA computing, logic gates and Nano machines, may one day give money managers a run for their money. As it is now, robo-advisors are becoming a real threat to some RIA business models.

The goal of these AI technologies within the financial space is to, ideally, interpret data faster and therefore make more precise predictions of pricing across asset classes.

In the future, quantum computing may facilitate deep learning and data processing capabilities that will surpass today’s standards. The algorithms may control more of the market.

“Imagine a world where (investment) analysts are no longer responsible for performing analysis on one sector or asset class at a time. But instead, they cover all asset classes at once because of the ability to process all known financial information at hyper speed,” says Anton Gordon, co-founder of Gordon is a former equity analyst for Channing Capital Management in Chicago. Indexer owns a program called Vector, which is used to extract information from news articles in real-time. The idea is to provide summary headlines and data to help investors, or investing platforms, better use open source business intel to make their investment calls.

Market experience and instinct will remain important, but a lot of the guesswork could be cut out as more accurate information is processed and better predictions are created through modes such as quantum computing.

Gordon thinks that AI advisory platforms may lead to a “zero-volatility point.” This would be a point where all known and previously unknown financial market data could be factored into short term and intermediate term trades.

“The very nature of how we trade stocks and other assets will change,” Gordon says. “As the use and application of quantum computing normalizes in the financial services industry, we may reach a point in which the returns on various asset classes approach the risk-free rate due to market prices that more accurately reflect current future expected information on the underlying assets.”

Robo advisors are a threat to the RIA community because of their cost structure. Once the models are built, they need very little upkeep. Some robo advisors charge no fees at all for trading. Firms like Wise Banyan make money by selling add-on services.

Goldman Sachs is getting in on the act. The robo platform their building is for clients of the bank’s wealth management unit.

Still, the professional advisor community is not going the way of the T-Rex just yet.

According to a survey by Capital One Investing, 56% of retail investors say they see the value in AI investment strategies. The good news is that 69% want a real person to talk to. Some 71% said they wanted both — AI to keep costs down and risks low, and human interaction to better plan for the future and understand the markets as more than just some high tech video game.