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So what exactly is an AI-based financial adviser?

16/04/2018

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Holly has a brief chat with Catherine Flax, CEO of Pefin, a 100% AI-driven financial advice platform.

Catherine Flax is the CEO of US-based Pefin, the world's first AI financial adviser. A New Yorker through and through, she said goodbye to Wall Street, commodities, foreign exchange and emerging markets sales and trading, and stepped over into personal finance, taking the helm at the firm one year ago.

Customers of the platform will plug in banking details, credit card info and debt and answer questions about priorities and goals. A neural network then whirrs into action, adding in external information relevant to that person’s location, demographic details and expenditure such as college fees, tax rates and childcare costs. If an investment plan is appropriate, it’s produced. Initially the platform didn’t have proprietary portfolios but customer demand led to the introduction of these.

With only 25 staff this is 100% AI driven platform. The only human intervention is for technical support, such as help with a transfer or on-boarding.

Pefin is looking outside the US and the firm has recently signed an institutional deal in Holland. Flax tells me that the AI layer didn’t need changing for this – it’s “the layer on top” such as local pension rules and cultural differences which needs re-jigging. Working out the cost of medical care isn’t such a big deal for the Dutch as it is for those in the States, for example.

What about cultural attitudes to dealing with a robot? In Flax’s experience this is more about whether there is a culture of seeking financial advice. If there isn’t then it’s harder to sell a service where there is poor comprehension of the benefits. And that, as always when we’re talking fintech, reminds me that human nature is not changed by any of this stuff.  We’ve been trying to work out how to explain the benefits of financial advice for years. The same challenges typically remain. It’s just some of them can be solved more efficiently, more predictably and a lot more cheaply by AI.

With a subscription fee of just $10 a month (yes, FD of an advisory firm, put that in your financial pipe and smoke it!) and 0.25% for the investment portfolios, this is a fairly compelling proposition for consumers to try. It won’t solve every challenge but Flax reckons it will deal with 90% of people’s needs. Complex affairs and tax labyrinths probably still necessitate a human brain and contacts.

The company launched quietly to consumers in December and has 4,200 signed up today. Post an upcoming capital raise and some public fanfare, it’s hard to imagine it staying at these levels for long.

Catherine will be presenting at our Fin-k Tank event in June. To have a look at the Fin-k Tank agenda or reserve your place, please visit the website.

Meet the Robos

Robo advisers are a relatively new way to invest for people who don’t give a hoot about the minutiae of stock markets, for people who want someone else to do it for them

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