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How can Artificial Intelligence help advisers?

Sue Whitbread takes a look at the Clever Adviser Technology Ltd (Clever) proposition and talks to Clever’s Patrick Boughton and Nicola Cornish about how AI can help advisers deliver more robust investment portfolios for clients


Fearing Artificial Intelligence (AI) is like fearing an electric screwdriver – it fails to acknowledge that it is a tool designed to make doing certain tasks more efficient

Artificial Intelligence is advancing, but it is not new in the financial planning space. Take Clever’s first proposition – CleverAdviser™ although the service has been offered to IFAs since 2010, it started life in 1999 – it is constantly evolving but it is not new.

What CleverAdviser™ offers is not unlike what Intel offers laptops – it helps improve the processing power of advisers. In turn, this improves the service that advisers can offer their clients, both because they are reassured that their investment portfolios are actively monitored and managed, and because with CleverAdviser™ providing analysis, advisers have time to deliver the oversight, guidance and advice that their clients really value.

But should we be concerned about what AI means for jobs in the profession? Not according to the Clever team, as it sees big opportunities from it which can help advisers provide a better service to clients.

Platforms, the internet, social media – they have all been here for long enough now that the market understands that they can be used to enhance client relationships. However, they do not and cannot replace the value that humans place on personal contact. Financial planning is a people business, so using tools that freeup time away from clients ensures that more time can be spent on the areas which clients value most – contact with their advisers. The history of CleverAdviser™ informs their view.

Investment management – what is missing and needed?

CleverAdviser™ was created by Colum Wilde, a Certified Financial Planner who was looking for a way to protect his clients’ assets. He noticed that a key way in which those assets were eroded was through the underperformance of some funds in their portfolios. He felt that the industry was very good at identifying when it was time to buy into a fund, but not so good at when it was time to get out. He was frustrated by the way in which analysis of fund performance often came too late – both in the sense that the underperformance had already had an impact and that you may be removing a fund just as its performance was picking back up. A believer in the value of active management, he sought a solution that could identify when it was time to come out of a fund as well as when it was time to get in.

Nicola Cornish is the Managing Director at Clever. “Behavioural finance is helpful in that it identifies certain behaviours that markets and people – including advisers, fund managers and clients – demonstrate that are counter-productive to growing wealth” she says. “For instance, for many clients, the risk of loss often exceeds that of the risk of loss of opportunity. Sadly, the herd mentality means that there is comfort in numbers and a desire to be part of something, often at just the wrong moment – for example as markets hit their peaks rather than as they plummet, and funds become cheaper to buy. And of course, in plummeting, that fear of loss becomes a reality. It can be very hard to convince a client that there is a buying opportunity before them. In fund selection, behavioural finance shows that there are similar biases. There is a perceived comfort in brand names and large funds – it is that herd mentality again. Advisers sometimes find it can be difficult to sell a fund because the fear of getting that call wrong can mean that losses need to be banked. In short – sometimes we can be our own worst enemies.”

Technology has broadened the tools available to advisers and fund managers alike. So, to use our earlier analogy, we are at a stage where we have both screwdrivers and electric screwdrivers. It means that there is more choice and more precision available to advisers and paraplanners from today’s technology. AI is one such tool. It is not the answer to everything, but it is useful.

The CleverAdviser™ approach

CleverAdviser™ is an AI tool for advisers and paraplanners which they describe as stripping the emotion out of fund picking. It provides rational, unbiased, unemotional analysis of all UK listed open-ended funds – active and passive – every month. It does so by examining a range of factors for every listed fund and analysing that data. The result is that the system determines which funds are no longer delivering the performance that they should, and which funds are.

Successful advisers aim to maximise their time spent advising their clients. Of course, increasing business profitability is important too. Such advisers want to be able to scale their businesses and to maximise efficiency within them. Analysing the UK’s universe of circa 4,000 active and passive funds (unit trusts and OEICS) on a monthly basis takes time. CleverAdviser™ provides a tool which can do this quickly and efficiently. In doing so, advisers can free-up their time to deliver the value that they offer their clients – trusted guidance and advice. For fund selectors, it means that they can spend more time considering the risk profiles and asset allocations of their clients, knowing that CleverAdviser™ is powering the fund selection.

According to Cornish, performance data strongly supports the proposition.

So how is Clever developing its range of services?

In a new twist, the Clever process is now also available in a managed portfolio service provided by 8AM Global.

Boughton, Clever’s Sales and Marketing Director said “The 8AM Global team have worked with us to create a range of risk-matched portfolios. They consistently monitor the asset allocations in line with these risk profiles, whilst our tool identifies the funds that can deliver the performance. Monitoring is monthly, which means the portfolios are actively managed – with the 8AM Global team offering governance and oversight and buying in and out of the funds that Clever identifies as necessary.

Fearing Artificial Intelligence (AI) is like fearing an electric screwdriver – it fails to acknowledge that it is a tool designed to make doing certain tasks more efficient

“As you would expect, the 8am Global team are great believers in active fund management – however they, like us understand that investment management is not a one-way street, it is not about active or passive exclusively, it is about providing clients with the performance they expect, protecting client’s assets and selling out of underperforming funds at the right time to help achieve this.”

So, what does this mean for investors? performance has been good, the figures below illustrate the returns from one of the existing cautious Clever portfolios modelled from January 2014 against its benchmark sector. The data includes the period from November 2017 to date in which the models have been managed by 8AM Global.

You may be asking yourself if this is an improvement on your existing investment solution. This simple answer is almost certainly yes:

  • The Clever system provides top performing funds for each specific sector allocation.
  • Unusually, the Clever system provides for the removal, without those human biases, which so often drive allocation decisions, of under performing funds, quickly and efficiently.
  • The Clever system provides a governance framework which gives both investor and adviser the piece of mind that their assets will continue to match their attitude to risk.
  • Investors and advisors are provided with monthly updates on performance and changes to their portfolios keeping them informed and involved.

This combination of benefits not only provides the sort of performance in good times which investors demand, it also provides the piece of mind which investors need when markets are turning bearish.

He concludes: “The current regulatory environment forces advisers to question the suitability of client investments. The 8AM Clever model portfolio service ticks a lot of boxes. It means the suitability of investments is questioned, analysed and updated on a monthly basis. Advisers can choose to communicate these updates to their clients via a system- generated, white-labelled email, which clients really value. And with functionality, governance and oversight offered by 8AM Global it offers advisers the time and space they need to ensure suitability and deliver the guidance, advice and additional services that their clients value – knowing that their investment portfolios are being actively managed.”

Clever talk about intelligent investing and their service as ‘powering’ advisers to do what they do best by providing a tool that they can trust, and which frees-up their time in order that they might work on the value they add for their clients and growing their businesses.

Nicola Cornish is Managing Director and Patrick Boughton is Sales and Marketing Director at Clever Adviser Technology Ltd. which is based in Chester.

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