Demystifying Investing: The Power of Digital and Generative AI

With an audience of fintech enthusiasts, I am probably preaching to the choir, but investing your excess savings remains critical to preserving and hopefully increasing the buying power of your hard-earned money. Unfortunately in practice, this is easier said than done.

After years of great enthusiasm, investments in robo-advisors seem to be returning, despite the hype of AI and its clear link with this technology. At the same time specialized digital trading platforms like Robinhood, Webull, E-Trade or eToro offer an excellent user experience, but often remain a bridge too far for the average investor, who occasionally invests relatively small amounts via their regular bank. And good advisory services still target mainly the happy few, as the costs are too high to offer to the masses.
As a result, the occasional, amateur investor, who doesn’t want to spend too much time on his investments, often ends up buying the "Fund of the Month" offered by their bank or invests a large amount in a single stock they believe will perform well.

This is clearly not an ideal situation for a substantial group of customers, probably even the majority of investors. The solution, in my opinion, lies in self-directed investing supported by digital advice. Contrary to robo-advice, where there is a strong push towards specific investments, the initiative here lies with the customer, but they are digitally guided and supported with their investments in a very intuitive way. This can be achieved in three ways:

• Intuitive and Graphical Representation of current portfolio: Providing a clear visualization of the customer’s current portfolio and the issues associated with it, such as incompatibilities with the customer’s risk profile and investment objectives, issues with knowledge and appropriateness of certain investments, or specific market risk issues like overexposure to a particular country, sector, currency, or issuer.

• Support in Security Selection: Summarizing and graphically representing the characteristics of securities and the financial results of the underlying companies. This includes easy comparison between different securities, highlighting key aspects, and summarizing the underlying company in a personalized way, focusing on elements that matter most to each specific customer.

• Impact Visualization of Investment Decisions: Showing the impact of specific investment decisions on the portfolio, such as the effect on diversification, the impact on Value at Risk (VaR) by graphically showing the correlation of the investment with existing positions, or a graphical representation of the possible variation in future value (maximum loss and gain) based on historical data.

Many of these representations can be based on precise algorithms (e.g. calculating correlations or VaR), but a significant part requires interpretation of unstructured data and needs to consider the personal preferences of the investors, ideally derived from the user’s past behavior. Additionally, to visualize these insights intuitively and engagingly, it’s important to make use of multimedia, such as pictures, animations, videos, and audio. These media are easier for end customers to consume, but in the past, their generation was very time-consuming and expensive. This limited their use, often resulting only in generic, one-size-fits-all content, which was not very relevant to the specific investment situation of each customer.

The rise of generative AI can significantly help here. Generative AI is becoming increasingly multi-modal, and the results improve daily. Today, it is already possible to generate high-quality pictures (e.g. DALL-E, Midjourney…​) or videos (e.g. Sora AI, Synthesia, InVideo…​) with a simple prompt. As the media generated for different customers can follow predefined templates, even better results can be obtained by limiting the degree of free generation with templates and constraints. A very interesting example of such AI-generated investment advice content is Zeed, which offers a B2C investing platform, but recently saw a surge in interest to license their AI software solution to banks and Fintechs. In a world where AI seems to be used for everything, even when the added value is limited, this story is refreshing as the use of AI can truly elevate investment advice to the next level.

For more insights, visit my blog at https://bankloch.blogspot.com