Thursday, July 24, 2014

Deep Green: Can a Robot Manage Your Money Better Than a Human?

Conceptual image of business woman without head and daily routine icons instead. Artificial intelligence concept Hasloo Group Production Studio/Shutterstock Historically, when Americans invested their money with a financial adviser, they wanted to walk into an office, shake hands and sit across the desk from the person they were entrusting their money to. There's something about looking a person in the eye that helps engender trust and confidence. But as technology improved and became ubiquitous, those sit-down meetings increasingly began to be replaced with phone calls, or sometimes just email exchanges. Now, a new generation of money management firms like Wealthfront, Betterment and Motif Investing is taking that concept a step farther, betting that today's investors will not even want to deal with a live adviser. Instead, their platforms are designed to allow you to invest your money with all the customized finesse that comes from having an adviser –- but without ever interacting with one. It's the dawn of the "robo-adviser," but whether you'll consider this innovation a good fit for you might depend on which side of the generational gap you fall on. Answer the Questions These robo-adviser firms customize their adviser-like investing services by asking customers a complex series of questions when they first open their accounts online. The tools, say proponents, can determine a client's risk profile and suggest asset allocations better than a human adviser can. And because the process is automated, it is extremely efficient, allowing these firms to offer their services -- and an increasingly complex set of investing tools -- at a very low cost. But the question you have to ask yourself -- before answering all their questions -- is, "Am I comfortable investing with an algorithm alone?" An algorithm, after all, simply takes a given set of information -- the data points in this case being your answers to series of questions -- and follows a set of clearly-defined steps to calculate a solution -- in this case, the answer to the question, "How should I in best invest my money?" At it's core, it's same process through which companies like Google (GOOG) figure out which ads to serve up to you, Amazon (AMZN) suggests books it thinks you will like, or Netflix (NFLX) reviews your previously viewed movies to determine other films you'll want to watch. Still, though algorithms have quietly become a pervasive part of our everyday lives, financial services has traditionally been a "high-touch" business -- one that demands plenty of personal interaction. But that's not as important to millennials, as technology has taken the place of face-to-face interaction, allowing even the business of dating to be transformed by sites like and apps like Tinder. Go for a Test Drive, With a Little Bit of Money For those in Generation X (or older), that may not be such an easy transition to make when it comes to your money. However, there is a simple way to determine if a robo-adviser is right for you. Test it out. Often, people look at investing as an all-or-nothing endeavor -- as if their capital has to go into either stocks or bonds, they have to be "in the market" or "on the sidelines," investing with an adviser or without one. But the same technology that gave birth to the robo-adviser gives you the ability to test-drive different investing products with a low initial investment. So if robo-advisers intrigue you, sample the concept with a small amount of your funds. There is no cost to open an account with a robo-adviser firm, and it can be done quickly and safely from your computer, with no obligation. Test out the tools and services that are offered. See if you like what they are doing with your investments, and if you are comfortable with the user experience. If you are, then you can move over as much, or as little, as you want. And if you don't think a robo-adviser is right for you after trying one out, you can close your account and take your money out with the click of a button. Company: Oracle Cash compensation: $5.5 million Stock and options: $90.7 million Total compensation 1-year change: 24% Despite his $1 salary, Ellison is not only the highest paid tech CEO this year, but the highest paid of all CEOs.

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