Are robots replacing humans in finance jobs?
Artificial Intelligence is increasingly being used to automate financial tasks like wealth and risk management
By Nafis Alam and Graham Kendall (Tech Talk)
Published: Tue 4 Jul 2017, 9:29 PM
Last updated: Tue 4 Jul 2017, 11:34 PM
The year is 2030. You're in a business school lecture hall, where just a handful of students are attending a finance class.
The dismal turnout has nothing to with professorial style, school ranking or subject matter. Students simply aren't enrolled, because there are no jobs out there for finance majors.
Today, finance, accounting, management and economics are among universities' most popular subjects worldwide, particularly at graduate level, due to high employability. But that's changing.
According to consulting firm Opimas, in years to come it will become harder and harder for universities to sell their business-related degrees. Research shows that 230,000 jobs in the sector could disappear by 2025, filled by "artificial intelligence agents".
So, are robo-advisers the future of finance? Many market analysts believe so.
Investments in automated portfolios rose 210 per cent between 2014 and 2015, according to the research firm Aite Group.
Robots have already taken over Wall Street, as hundreds of financial analysts are being replaced with software or robo-advisors.
In the US, claims a 2013 paper by two Oxford academics, 47 per cent of jobs are at "high risk" of being automated within 20 years - 54 per cent of lost jobs will be in finance. This is not just an American phenomenon. Indian banks, too, have reported a 7 per cent decline in head count for two quarters in a row due to the introduction of robots in the workplace.
Now, banks and financial institutions are rapidly adopting a new generation of Artificial Intelligence-enabled technology (AI) to automate financial tasks usually carried out by humans, like operations, wealth management, algorithmic trading and risk management.
Such is the growing dominance of AI in the banking sector that, Accenture predicts, within the next three years it will become the primary way banks interact with their customers. AI would enable more simple user interfaces, their 2017 report notes, which would help banks create a more human-like customer experience.
Customers at Royal Bank of Scotland and NatWest, may soon be interacting with customers with the help of a virtual chatbot named Luvo. Luvo, which was designed using IBM Watson technology, can understand and learn from human interactions, ultimately making the flesh-and-blood workforce redundant.
Meanwhile, HDFC, one of India's largest private-sector banks, launched Eva. India's first AI-based banking chatbot can assimilate knowledge from thousands of sources and provide answers in simple language in less than 0.4 seconds. At HFDC Eva joins Ira, the bank's first humanoid branch assistant.
Similarly, Emirates NBD in the UAE recently introduced EVA, the bank's Virtual Assistant to assist the customer both via Phone Banking and Facebook Messenger. She is the first in the Mena Region and one of the few in the world who can converse with the customer naturally as voice during phone banking.
AI has also made inroads in the investment industry, where, many financial analysts say, a sophisticated trading machine capable of learning and thinking will eventually make today's most advanced and complex investment algorithms look primitive.
Goodbye, human fund managers.
Universities are now revising their educational blueprint to adapt to this technological disruption in the finance job market. Both Standford University and Georgetown University business schools are planning to offer so-called "fintech" in their MBA programs, hoping to teach students how to become masters of financial technology. And the Wales-based Wrexham Glyndwr University has announced the launch of the UK's first undergraduate degree in fintech.
Still, it is not clear that AI and automation will actually prove advantageous for banks. Too much reliance on AI could backfire if financial institutions lose the human touch most customers favour.
There are other risks, too. Robo-advisers are cheap and save time when creating a simple investment portfolio, but they may struggle to take the correct precautionary measures when markets become volatile, especially when thousands, maybe millions, of machines are all trying to do the same thing while operating at great speed.
High expectations for the performance of these well-programed robo-traders could also cause chaos in the key trading centres around the world.
There is no single algorithm that can combine multiple volatile variables with a multidimensional economic forecasting model that works for all investors. Expecting that could prove a potentially fatal error for financial markets.
And how will investors be protected when robots make the wrong decision? The SEC's rules, created to protect investors, require that advisers adhere to a fiduciary standard by which they unconditionally put the client's best interests ahead of their own. US regulators have asked whether it is practical for robots to follow rules when their decisions are generated not by ratiocination but by algorithms.
This conundrum demonstrates one fact clearly: it is hard to completely replace humans. There will always be demand for a real live person to act as check when and if our robots go rogue.
Nafis Alam is Professor of Finance, Sunway University and Graham Kendall is Professor of Computer Science and Provost/CEO/PVC, University of Nottingham