Friday 4 August 2017 10:03 am
Machine learning, artificial intelligence and robo-advisers: The future of finance?
What is city talk?
The topic of machine learning-enabled artificial intelligence (AI) is gaining increasing visibility in the world of investment management. Of particular interest is the application of AI to the development of smarter robo-advisers that some hope, while others fear, will yield 'intelligent' and cost-effective investment management advice. This topic was raised by investment professionals during the recent CFA Institute travelling conference that went to Central and Eastern Europe and the Middle East. AI has also been the subject of a recent European Commission (EC) consultation document, to which CFA Institute submitted a response.
For the uninitiated, some quick defining of terms could be helpful. Machine learning is a technique that researchers, and now firms, have begun using to design more intelligent computer systems. The advantage of this approach is that instead of attempting to hard-code a computer with all the possible scenarios and actions a machine may encounter when trying to perform a certain task, machine learning allows the computer to 'learn' the necessary relationships and actions involved in completing a task intelligently. This 'training' involves using a large training data set that the computer algorithm can repeatedly go through (but typically with guidance and supervision) to learn through trial and error how to connect the input data (e.g., credit history, employment history, assets, purchasing history) with the desired output (e.g., the correct identification of a suitable risky portfolio). Once this is learned, the algorithm can be used on real-world data with surprisingly good (in some cases) results.