Many financial advisory firms are seeing more automation in their middle- and back-office operations, according to industry experts.
The increasing automation process is expected to continue throughout 2018 and is leading to savings, improved efficiency and increased accuracy.
“I believe back-office operations for most professional services, including financial advisory firms, are either becoming more automated or are being offshored to other countries,” Mark M. Davis, a professor of operations management at Bentley University, told ThinkAdvisor. “The main reason, in my opinion, for the automation, is that it costs less, and is faster in terms of being more responsive to the end customers.”
The automation may come from the use of artificial intelligence, machine learning or even older forms of technology.
“Automation, even without taking artificial intelligence into consideration, provides faster, more accurate information at a significantly lower cost,” Davis said. “I don’t believe there are any drawbacks with respect to back-office operations.”
Vasant Dhar, a professor of information systems at New York University, also sees that some back- and middle-office operations are being automated.
“It’s hard to say whether AI is being used to do this or whether it’s just plain old technology, but at the end of the day it is increased automation,” Dhar said.
“If it is being done [perhaps by AI], the ‘how’ part would be done through data that is ingested by machine learning algorithms that learn how to flag unusual or risky items,” he explained. “The way such systems are created is by taking historical data, labeling such data as being ‘good’ or ‘no good,’ and getting a machine learning algorithm to figure out what discriminates between the two.”
When it comes to automation of back- and middle-office functions, Dhar says, “the lowest-hanging fruit is operations — which requires ensuring that things match up and add up, so that reconciliation can be done more smoothly by fewer humans.”
Moreover, there is also “increasing regulatory pressure” where advisory firms are increasingly required to certify things about their operation which requires more due diligence, according to Dhar.
In addition, Lex Sokolin, global director of fintech strategy at Autonomous Research, said that online opening of accounts, automated money movement, trading and rebalancing — are among the functions that “have seen rules-based automation in the last decade.”