Written by Richard Hamm, Chief Executive Officer, Bristol Gate Capital Partners Inc.
Once the stuff of science fiction, the impact artificial intelligence (AI) is having on our everyday lives is real, powerful and growing by the minute. In the financial services sector technology is increasingly being leveraged to optimize workflow and analyze large sets of data for their own business purposes. But in an industry, where barriers to change are supported by regulators and legacy systems rife with inefficiencies, the use of real AI technology is gaining ground in making changes for the clients as well.
AI technology will be just as disruptive a force in the investment industry as it has been to the hotel and taxi businesses. Personal investing will benefit from the many systems that are being created to develop custom investment solutions at a fraction of the costs currently charged. From managed financial planning programs to investment selection and asset management tools that are better suited for each individual, AI will improve upon human only solutions. The obvious impact on all aspects of the business will result in lower or more appropriate fees and greater transparency. In short, anyone who does not grasp the impact of AI will have on business revenues and client satisfaction stands to be left behind. From the client’s perspective machine learning and artificial intelligence will pave the way for a greater democratization of institutional quality products and services and their availability to the public. Hopefully this will lead to better investment returns and to significant social benefits, including lowering the government’s support for retirees as a result.
At Bristol Gate, machine learning and neural linguistic programming allow us to effectively generate ideas for our portfolios rather than chasing around external sources. In addition, it gives us better insights into risk analysis and the factors to consider in managing risk. We believe that together these are very important parts of the equation and contribute significantly to our abilities to both grow and protect our client’s wealth by ultimately building a better portfolio. It also allows us to standardize product management and improve on both existing and potential new products by using concepts that can be tested and proven with evidence as opposed to having a human bias or by being influenced by behaviour that is based on people’s own feelings.
Finally, machine learning enables our firm to cut costs, which allows us to be leaders in competitive fees. We know from first-hand experience it makes us better and more effective at idea management, asset allocation processes, portfolio construction and optimization of the portfolios that are built.
However, even with its unprecedented influence on our portfolio management abilities, we believe the investment portfolios selected by AI-driven technology still require the assurance of a human being to manage the process. Like most people today we would hesitate to ride in the back of autonomous vehicle and let the car drive wherever it wanted; rather, we still prefer our hands on the steering wheel just in case. This reliance on human intelligence makes sense since our own AI, our brain, is still the one who generates the questions the machine answers.
Popularity of ideas invariably leads to people jumping on the band wagon. It is no different with AI as many of today’s investment managers will tell you they have adopted AI as part of their process. We think these statements are broadly exaggerated and strongly suggest you look under the hood to see what’s there.
When you are evaluating an investment manager and trying to separate the authentic from the counterfeit ask three questions: are the data sets they talk about relevant in solving the investment question they are intended for; how developed and skilled are the “data scientists “ that work for them and finally are they using “machine learning “ as a term interchangeable with traditional quantitative methods.
Since its inception 10 years ago, Bristol Gate has been at the forefront in using data analytics in its investment strategy. This investment boutique knows how to navigate and deliver results in the digital age giving it a competitive advantage which has attracted the attention of the financial institutions on Bay Street, Wall Street and internationally.
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