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November 02, 2015 at 07:00 PM
The future is here: 2015 is the year of self-driving cars, virtual reality worlds and palm-sized flying drones. So let’s talk about how science fiction is becoming reality, and the impact it will have on wealth management.
Trend 1: Integrated Wearable Computing
Just around the corner is the ubiquitous integration of smart computing into the fabric of our everyday life. What used to be expensive and enormous, in the form of mainframes and desktops, is now compressed into the smallest shapes of hardware. These shapes will be worn on our bodies, attached to clothing and built as sensors into the environment.
This trend, called wearable computing, is already in the marketplace in glasses, jewelry and watches. The devices are revolutionary in both their collection and communication of data. As passive objects integrated into our daily routines, they can measure and store our physical markers like heart rate and hours of sleep. A connected GPS can map out our path through work and leisure. Embedded video cameras will record every moment of life, and save the stream to a private, secure database.
Financial institutions will have more information about prospects and clients than ever before. Devices will generate personal data on an unprecedented scale, to be saved and accessed whenever needed. Controlling such access through privacy and security will be paramount. Advisors will be able to access not just financial information, but anything a sensor can track and a client wants to share. From insurance products to service models, this data will create a picture of households that will be truly holistic.
Impact for Advisors: Wealth management workflows will also be impacted. For example, we already use a tap of the thumb on a small computing device to authorize financial transactions. Similarly, a wearable sensor that authenticates through Apple Pay would be more secure than any paper process the advisory industry uses today.
Trend 2: Image Recognition
Now that we have all this data, how do we make sense of it? How do we parse it and gain a true understanding of the individual underneath?
The answer is machine learning. Based on a recent development in artificial intelligence called “neural networks,” computers can scan billions of images and look for faces and objects within them. Think of an image that we may want to find: a face of a friend, a dog, a mountain. For each of those images, an algorithm is trained to be the expert finder.
Google Photos offers this functionality freely today along with infinite storage. The developers’ hope is that users will find it more convenient for software to organize and tag their photos than through manual intervention. And as the sheer volume of information continues to increase, machine learning will be the only way we can keep up.
Impact for Advisors: Every individual who allows algorithms to categorize their images will, as a byproduct, create a full graph of expressed preferences that is true and accurate in a way that no risk questionnaire can hope to capture.
An advisor can learn if their client is a cat or dog person, whether they like to travel or renovate their home, how many children they have and what age they are. Software can impute risk tolerance and capacity for risk taking. It can prompt the opening of a 529 plan after noticing a photograph of a newborn baby.
Trend 3: Natural Language Processing
In addition to the preferences generated with images, we already have the ability to create personality profiles based on what people say to each other on the Internet. A computer can analyze all of the written and spoken communication from a particular person, and then translate the words and sentences into moods and meanings. Over the longer term, a picture emerges about the personality of the writer, her biases and individual quirks.
One example is Five Labs, which uses semantic analysis and natural language processing to understand what written language implies about the author. Another provider is IBM Watson, a supercomputer with machine learning capabilities.
Impact for Advisors: Watson unearths an even deeper behavioral profile, called Personality Insights, and is working with wealth managers today. It can uncover whether your clients are introverted or extroverted, inventive or conservative, and value achieving a larger purpose or a life of comfort. All this before a single meeting takes place.
Amazingly, many of the tools and technologies to run such a complex analysis are already open source, meaning they are available for anyone to grow and modify. The input text, whether on Facebook, Twitter or other social media, can be analyzed into sentences and intended meanings, and then can be associated with broader topics, moods and personal attributes. This technology makes paper risk profile questionnaires woefully antiquated.
