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Should asset managers be afraid of artificial intelligence?
The explosion in artificial intelligence tools – such as ChatGPT – for the general public in recent months has thrown up any number of questions for the financial sector. Everyone is making predictions about the benefits and dangers of AI, from tech gurus on Twitter to politicians at the highest level, and of course there are chats with our colleagues. The whole thing has become a joyful cacophony, alternating between utopian dreams and more or less orchestrated catastrophic gloom.
Who can we trust? The reality of what AI is good at is certainly a lot less clear cut. A few weeks ago, researchers at the University of Florida published their initial results from an investigation into ChatGPT’s ability to predict stock prices. More specifically, they looked at the influence of media and press coverage on the price of US stocks, as an article in Le Temps pointed out. According to the researchers, while the very latest version of ChatGPT can indeed detect a hint of “market sentiment”, its ability to predict stock price performance is better for small caps and less efficient when there is bad news, showing it already has some bias built in.
Analysing, testing, exploring
At Lombard Odier, our analysts have long evaluated which sectors and tech stocks to invest in, including artificial intelligence. But we take things a stage further. We also integrate new technologies into our own IT systems as a way of exploring what they have to offer in terms of improving our management, our processes and our client experience. This may mean including new types of non-financial information (such as geospatial data), or using new technologies to improve strategies developed decades ago. For example, we have won several prizes for our technology applied to ESG and sustainable investment.
Read also: How does our ground-breaking technology support External Asset Managers?
We think there is no reason to be afraid of artificial intelligence, any more than of blockchain or the metaverse. In fact, we are exploring and testing these technologies, both as a company and within our community, in dialogue with our various partners. To our mind, this is crucial if our financial centre is to remain competitive and hold its ground in the digital transition.
Perceived risks and emerging opportunities
Setting aside the effects of pronouncements and headlines about AI or any other technology, we all have a very human need to experience the benefits of these technologies for ourselves before adopting them – or abandoning them. On paper, the first iPhones and Spotify didn’t have much of a future ahead of them...until users were no longer able to live without them and adopted them en masse. It’s the same sort of story with the technologies we now use in finance, or may use in the future. They might affect financial analysis, portfolio management or interactions with our clients and partners – who themselves are often calling for secure and intuitive digital solutions and platforms.
But we mustn’t be naive: risk management has to be at the heart of all technological developments. According to the 2023 Barometer published by insurance company Allianz at the start of the year, the biggest risk identified by Swiss companies is cyber attacks. Let’s not forget that even the Federal Council takes the digitalisation of the entire financial centre very seriously, to ensure that it remains competitive. Last year it issued a report and road map on the subject entitled “Digital Finance: areas of action 2022+”. The report highlights 12 essential measures that must be taken if Switzerland is to retain a strong financial centre in the digital age.
After compliance, time for technology and growth projects
For independent asset managers, compliance issues trumped technology developments until the end of last year, which was the deadline set by FINMA and the Financial Institutions Act (FinIA).
Most of them are therefore embarking on a new era that will be marked by further recognition and new opportunities for the profession. But this new life comes at a price: it will mean increased demands and the implementation of new FINMA procedures and directives. Players will need to acquire new skills to develop their business model and focus on new vectors of growth and ways of generating income.
Solutions for Independent Asset Managers
Technology will be key for companies to remain viable for the long term, optimise and automate their internal processes to increase efficiency, cut costs and reduce human errors. With this in mind, partnerships and cooperation with banks and the ecosystem of Fintech companies in Switzerland makes a lot of sense. Together we can enhance productivity and create more synergies, enabling us to lighten the burden imposed by reams of regulations.
Already-available solutions like Wecan Comply and OpenWealth are designed to encourage banks and independent asset managers to work together to standardise existing processes. These solutions reflect the shared desire of custodian banks and asset managers to define common standards together.
Facilitating interactions between banks and independent asset managers
Because the stakes are high, various banks have signed up to the Wecan Comply project, which facilitates interactions between banks and independent asset managers. Thanks to blockchain technology, the initiative enables the rationalisation of processes, reduction of the workload involved in compliance, and information sharing in real time. In future there will be many more potential applications on a blockchain space for asset management services, such as NFT and smart contracts.
Read also: How can External Asset Managers continue to be entrepreneurial?
Not all external asset managers have a Portfolio Management System (PMS) yet. It will be increasingly difficult for them to continue to operate without something like a PMS or a more integrated CRM and/or suitability and appropriateness process management system.
It will become essential for a custodian bank working with external asset managers to develop and implement digital flows between the bank’s system and the PMS used by the external manager. More especially, downstream integration means trading orders can be sent from their PMS and execution received in real time.
Read also: What can we expect from blockchain?
But contrary to the popular belief that digitalisation goes hand in hand with dehumanisation, human contact will remain at the heart of wealth management. Meanwhile, new technologies will help boost relations, facilitate communication and optimise processes, freeing independent asset managers to look at the future more clearly and focus on their core business.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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