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Designing a personalized investing experience with AI and machine learning

Digital transformation is driving goal-based investing across the financial services industry through data insights, cognitive computing, and social media analysis

Who doesn’t enjoy a good game? But when it comes to money–investments and retirement savings–games are no laughing matter; in fact, they’re serious business. While Monopoly money is great for games, the financial risks of investing can last long after the board has been put away. Investors and regulators desire full transparency regarding the rules of the game (including costs and conflicts of interest), as well as potential outcomes of each move and future action. They seek clear guidance about when and why to save, invest, or sell.

Welcome to goal-based investing gamification

What if cognitive technologies, such as artificial intelligence (AI) and machine learning could design a personalized investing experience? If propensity- to-invest scenarios offered a graphical representation on how to reduce risk while achieving higher returns? Or could games, or more precisely, “gamification,” (that is, “the use of engaging gaming mechanisms to modify the behavior of individuals”) help investors achieve critical insights that offer the promise of long-lasting value?

Disruptive technologies are foundationally altering the financial services industry. They are reducing the complexity of investment decision-making by making offers and products more intuitive and, in some cases, even fun. The financial services industry is undergoing a transformation–from a distributor of financial products to a digital packager of financial advice. And because of this reverse engineering of the investor experience (that is, starting with client insights first), financial services firms require a deeper, more intuitive understanding of each customer–whether institutional or individual.

Financial services businesses can use technology to help generate greater value and profitability for investors, as well as product manufacturers and distributors. How? By delivering personalized advice and content that leverage behavioral analytics and compel action (such as informational requests, stock trades, portfolio rebalancing, and performance measurement) at the point of digital interaction.

Let’s further examine how goal-based investing, robo-advising and gamification are interacting to transform the experience of investing in the cognitive era.

Goal-based investing principles revolutionize the investment landscape

New philosophies about client interaction and portfolio management are a result of recent technologies impacting the financial services industries. For much of the latter half of the twentieth century, asset allocation techniques have been based on Harry Markowitz’s Modern Portfolio Theory (MPT). MPT assumes that financial markets are efficient, focusing on simplified risk and return statistics, instead of considering the diversity of clients’ profiles.

But since market participants are not necessarily rational, all aspects of behavioral finance need to be factored into the investment equation. Today, goal-based investing (GBI) makes investors active participants in investment decision-making, using technologies such as scenario analysis, financial visualizations, and risk-factor simulations.

Whether the advisor is digital or human, consideration of a client’s risk tolerance, personal preferences and goals, expands the scope of the business: that is, from purely financial product-driven distribution to portfolio-driven and client-centric advising. GBI better allows clients to address the surrounding emotions that often accompany investment decisions by testing investment opportunities against the singularity of their ambitions and financial balance sheet.


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Meet the authors

Paolo Sironi

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, Global Research Leader, Banking and Finance, IBM Institute for Business Value and IBM Industry Academy member


Jan-Enno Einfeld

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, Head of Investing, comdirect bank AG


Gregg Schoenberg

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, Partner, Wescott Capital/The Financial Revolutionist

Originally published 01 February 2017