Financial “Advice” from Advisors — And Experiment

By Rob Tyrie

Photo by Ays Be on Unsplash

I got a cold call from a financial advisor with a good background in business and some background in technology. He was probing. He wanted to know more about my background beyond the fact that I was an Entrepreneur. He was cold-calling me after researching Linked In. Because I told them that I had a programming background he told me he was technical and had done some programming. Now, I wanted to ask him about AI and finance because I wanted his perspective.

Although he disclosed he never used new AI tools, he was sure that AI would never replace the relationship or communication between a client and a financial advisor. He was confident in his understanding of machine learning from 10 years ago. He implied that the software couldn’t operate at his level of communication or understand the nuances of a client relationship to deliver results.

That got me thinking… I’ve been working with financial services advisors for over three decades and I’ve helped build, design and deploy systems for financial advisors to support sales marketing and relationship management with their clients.

In the late 80’s a 90’s I thought that we could build expert systems to augment the skill sets of financial advisors but I was wrong. It would cost way too much money and too much effort to keep expert systems updated and give the nuanced feel that people needed.

Now, after a year of using Frontier AI models and advanced chatbots, one thing is very clear to me: this financial advisor had a broken view of the world and was probably misled by a lot of current media. I do not doubt in my mind that 90% of the activities and discussions that financial advisors have today with their clients and customers can be replicated by artificial intelligence. And, they’ll be 10% of their current clientele, especially younger people, that will not want to talk to an advisor ever. They will still want good advice from major banks that can stand behind that advice, they will still want financial management of their funds and their taxes as they grow and change in their risk profiles as well as other banking services.

Customers will still want empathy and support if their losses are high or if there’s a huge tax problem or a life change with huge uncertain ramifications. Honestly, it just takes too long and there’s too much sales trickery in too many financial advisors for regular consumers to have the patience to deal with them. So what’s my advice? Well for banking institutions they should be investing in Frontier AI that’s fine-tuned and optimally tested for adversarial behavior and correctness in providing advice with the banks backing of set advice once the testing has occurred. I know that AI has already been used to optimize portfolios at a mass scale as well as individualized accounts, so that’s in place already.

So what will happen to today’s financial advisors and then the next 10 years?

What can you do?

Here are 5 suggestions and 3 Books to read and understand. After the suggestions, I’ll post a simple chat scenario of what it’s like to talk to one of today’s chatbots about an investment in Bitcoin.

1. Learn all the AI copilot tools you can. And do it formally. Learn the strengths and weaknesses of the current technology so you can get a sense of where it’s going. Get up and take a programming class, even if you took one hefore any time in your career.
2. Read books and get advice from other financial advisors who are younger than you in the field. Talk to customers every day. See number 1 and read it again. Some of the people you talk to, will be in your class.
3. Go deeper into a specialized skill or new asset class so that you can keep levelling up the information you can provide on top of your new AI co-pilot. GAI trained on history. If something’s very new expertise is needed to set up the original intelligence.
4. Be confident that based on the history of bookkeeping and the impact that software accounting systems had on their lives across two decades, there are fewer bookkeepers than ever before and more accountants than there have been in the past. Pros level up. There is a lot of work that you can do to fill the gaps between what’s possible with automation and what clients desire.
5. Focus on your soft skills. Empathy, listening, humour, and storytelling. You’re working for a major Bank like JP Morgan or Morgan Stanley a large. part of your job is going to be to be as human as possible in a rapidly changing world own it and be human. It’s not going to be doing quant models or life insurance illustrations.

To get the learning going here are three books I highly recommend. Two are about artificial intelligence and one is about Nobel prize-winning psychology and economics that is still the test of time.

1. Life 3.0 Max Tegmark 2018. Although this was written 5 years ago, Max, a physicist at MIT, really has a handle on computing and exponential growth and a sensitivity to talk about the impact of computing and artificial general intelligence along with the current tools that we have now. It’s a good history class about what’s happened and what will happen for the next 10 or 20 years. It was this book that convinced me that we will have very very inexpensive and highly complex computing that will help be able to complete superhuman tasks along a huge array of what’s done by people today.
2. The Coming Wave. Suleyman Mustafa. This is the CEO of inflective.ai a multi-billion dollar company that is building out one of the frontier models in AI. He’s also one of the founders of Deep Mind the variable foundry of the tools that we have in place now that are amazing. They do deep science at Deep Mind. This book will give you a good view of what’s currently happening, some of the huge risks and the coming changes that will occur. The end of the book is a gift — he focuses on Narrow AI and New computing that’s possible and within the technical and ethical grasp of current companies. This is what your bank or your financial institution is doing right now and thinking about.
3. Thinking Fast and Slow. Kahneman. This book is a summary of the groundbreaking work that Kahneman and Tversky did across their career, looking at different human biases and heuristics that predict a lot about human behaviour and how they act in pressure-filled situations. How people act across the long term. It’s got some great nuggets about happiness too. If you’ve ever heard of the term confirmation bias or prospect theory, these are the guys who created them and this is the book to read about it. I guarantee you that if you read this book and take the time to understand some of the techniques and science that’s been written down here, the way you sell things and the way you relate to people will change for the better. It’s not used or marketed. as a self-help book, but it should be.

Okay, the last part of this essay is what a chatbot can do when the financial analyst creates the prompt and asks about a $60,000 investment in Bitcoin ever ever-loving BTC. The text was generated from the 25-word prompt. If you don’t know what the word prompt means in this context, you have more learning to do. Here’s an idea. Do a search using a tool called https://perplexity.ai, and ask it the question: “Tell me everything you know about prompting and chatbots”. I chose not to create a dialogue, but you’ll get the drift of what is possible. I can take this idea and transform it along the profile of my customer or the style of my communication from very very formal to the grade 5 level if I want. This technology is good and it’s useful at this level, especially for well-known financial products.

Prompt: What’s your investment advice right now given that I think that it’s highly probable in 7 years that Bitcoin will double in value

AI Advisor

For a seasoned investor with a track record of success and $60,000 earmarked for a potentially high-risk, high-reward investment, considering Bitcoin as a vehicle presents an intriguing opportunity. Here's a comprehensive analysis that balances both the potential upsides and downsides:

### Investment Analysis

1. **Market Dynamics and Bitcoin's Position**: Bitcoin, as the first and most well-known cryptocurrency, has shown remarkable resilience and growth over the past decade. Its potential to double in value over the next 7 years would require a compound annual growth rate of approximately 10.4%, a target that, while ambitious, is not outside the realm of historical performance. However, the cryptocurrency market is notoriously volatile, influenced by factors such as regulatory shifts, technological advancements, and macroeconomic trends.

2. **Risk Assessment**: The high volatility of Bitcoin means the risk of significant price fluctuations is substantial. A seasoned investor would weigh this against the potential for high returns. Diversification within the cryptocurrency sector, or across different asset classes, can mitigate some of this risk. It's also crucial to consider the liquidity of the investment and the potential impact of market sentiment on price movements.

3. **Regulatory and Technological Landscape**: The evolving regulatory landscape for cryptocurrencies globally could significantly impact Bitcoin's value. Positive developments, such as increased acceptance and clearer regulatory frameworks, could drive prices up, while stringent regulations could have the opposite effect. Technological advancements, particularly those that address current limitations around scalability, security, and sustainability, could also influence Bitcoin's future value.

4. **Long-term Outlook and Adoption Trends**: The increasing adoption of Bitcoin by institutional investors and its growing acceptance as a payment method enhance its legitimacy and could support its long-term value growth. However, competition from other cryptocurrencies and potential technological obsolescence pose risks.

5. **Scenario Planning**: A seasoned investor would consider various scenarios, including market downturns or periods of low liquidity, and plan exit strategies accordingly. This might involve setting stop-loss orders, allocating only a portion of the investment portfolio to high-risk assets like Bitcoin, or establishing a timeline for reassessment and potential divestment based on market conditions.

### Strategic Considerations

- **Investment Horizon**: Ensure that the investment does not compromise liquidity needs, especially given Bitcoin's price volatility.
- **Market Monitoring**: Stay abreast of market trends, regulatory news, and technological developments in the blockchain space to make informed decisions.
- **Portfolio Balance**: Review and adjust the investment portfolio to maintain a balanced risk-reward ratio, considering the speculative nature of Bitcoin.

### A Lighter Note

Investing in Bitcoin could be likened to exploring uncharted territories. It's thrilling and potentially rewarding, but not without its share of dragons. As with any adventure, it's wise to have a map, a solid plan, and maybe even a dragon-proof vest.

### Conclusion

For a seasoned investor, Bitcoin offers a unique blend of risk and potential reward. While its capacity to deliver substantial returns aligns with the appetite for high-risk investments, it's imperative to approach this opportunity with a strategic framework that considers both the optimistic growth scenarios and the potential for abrupt market shifts. Balancing optimism with caution could be the key to navigating the volatile waters of cryptocurrency investment.

Rob Tyrie is an advisor and computer software systems consultant. He helps large-scale funds and organizations select and deploy brand-new technology for the benefit of their shareholders and their customers. He has an itinerary traveller and explores the world it his Jeep has a particular affinity for canoeing in Parks like Algonquin and Killarney. When he can’t get to the woods he spends a lot of time in cyberspace with you all. Drop him a line if you want to talk to him. Rob.tyrie@gmail.com.