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A conversation in the not-too-distant future:
Sarah: Hi Eva.
Eva*: Hi Sarah, how’s it going? You came home early today.
Yeah, I wasn’t feeling too well so thought I would have an early night.
What’s the problem?
I have a booming headache and a runny nose.
Sound’s terrible. Would you like me to order some cold and flu tablets? They should be with you tomorrow morning before you leave for work.
That would be great.
Excellent. I will do that now. Oh, by the way, I checked your bank account today and you have been good this month. You have an extra £50 in your account. Should I put that in your savings?
Sure, where will you put it?
As you didn’t top up your pension last month, I recommend you put it all in your pension account.
Okay, why not? Where do you think I should go tomorrow night?
Why don’t you take it easy and stay in? I can order some wine and download a new series that I am sure you will love. How does that sound?
Eva, you know me better than myself. Thanks!
* Eva is Sarah’s artificial intelligence (AI)–driven alter ego who learns from Sarah’s experiences and those of others like her who are plugged into the same online global ecosystem.
To some, this conversation might seem farfetched. But to others, it’s very close to a reality. With the creation of Alexa, Siri, Cortana, Google Assistant, and other chatbots, the battle to control the entryway into our lives is now being fought in our homes.
These new interfaces are changing how we look for and consume information and have far-reaching consequences for all businesses, especially consumer-facing ones.
With this in mind, how might artificial intelligence (AI) affect the world of retirement accounts, specifically defined contribution (DC) plans?
To answer this question, I asked myself: What could an intelligent self-learning AI system do for my financial life? Ideally it should be able to:
- Track and help budget my money.
- Negotiate the best deals with banks, utilities, and other service providers, switching services after finding better deals.
- Help me save by setting targets and mapping out the steps for me to achieve them.
- Account for my personal preferences while doing all of the above.
Does this sound impossible? Maybe today, but it’s not far off on the horizon.
So if this scenario is approaching, what will the transition look like? I have broken the process down into four stages along with their potential timelines:
Stage One (2017–2019)
Many retail investors distrust independent financial advisers (IFAs) and the vast majority of the population can’t afford them. As a result, technology-led, rules-based advice will play a major role.
The pension freedom reforms in the United Kingdom unleashed a deluge of cash that needs to find a home — and not necessarily in savings accounts. Where will this money go? To the firms that can provide the most holistic advice, not those who deploy an impersonal and formulaic approach — “We classify you as a three rating, so you should put your money into Multi-Asset Fund C.”
A human touch is required to win over consumers who may be skeptical about machines managing their money and telling them what to do.
Stage Two (2020–2022)
With auto-enrollment already in place, what comes next? Increasing default contribution levels doesn’t sound nearly as enticing as pulling millions more people into the savings world.
Why not develop more personalized defaults settings? Why not crunch all that data and create unique, individualized paths and instant communication experiences?
Stage Three (2023–2024)
So far, robo platforms help people figure out what to invest in. So consumers have to consciously decide to save, seek out information, and land on the right website.
The challenge in Stage Three will be luring the disengaged into the saving process: to help them make better choices but leaving the investment decisions to the experts. Eva or Alexa or Siri will be able to track their spending, suggest options to cut down where required, and keep them on track for their goals.
Think of them as personal financial fitness trainers. If personal spending goes over budget, Eva may step in and suspend your Apple Pay account.
Stage Four (2025–2027)
With fee transparency, few surviving providers, and robos directing consumers to the most suitable investment products and strategies, the employer’s role in retirement funds will probably diminish. In turn, true personal pension accounts, akin to bank accounts, will likely emerge at the expense of company-run plans. The default investment options will be determined by robos, not company committees. More importantly, the default position will be based on personalized data.
2027 and Beyond
I’ll leave this to your imagination.
If you believe the trend toward voice-assisted living will transform the financial industry, think about the other business models that depend on customers and clients looking at a screen. What are the implications for search engines, the advertising industry, and the 80% of apps that have more or less a single utility — Starbucks’ free weekly coffee app, for example?
If you are not on Amazon’s website, how will Amazon recommend products to you? How will Google generate ad revenue if people don’t see its screen? Questions like these are occupying the minds of engineers in the tech industry, and the stampeding pace of technological progress is proof that it doesn’t take much for the disruptors to become the disrupted.
So who do I think the winners will be?
Those businesses that are closest to their customers and open to collaborating to create plug-and-play propositions.
Let me clarify: Eva or Siri may know what was said, but they may not know what to make of it. This is where collaboration comes in. For example, if I order milk, the context is very clear, but my request can only be fulfilled if Eva has access to a service that can provide it. That may mean plugging into a supermarket’s bot.
So who will win this tech war? It could be Google or Amazon. But it could also be your local bank or supermarket.
Maybe my timeline will be extended in some places and crunched in others. But the doorway into our lives is being transformed by this high-stakes tech revolution.
And we are lucky to be living through it, watching from front-row seats.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
Image credit: ©Getty Images/mtreasure
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