HIGHLIGHTS:
- Artificial intelligence has already had a significant impact on the financial industry via research, but also trading and execution.
- Sophisticated algorithms can read and analyze large amounts of financial data, including earnings reports and SEC filings.
- AI won't be a magic solution for investors looking to achieve substantial or riskless returns, but it will likely be a tool to create efficiency and advance the industry.
Artificial intelligence (AI) has already had a significant impact on the financial industry in recent years. From algorithmic trading to robo-advisors, AI has changed the way investment advice is delivered to clients. Over the next five years, we can expect to see even more advances in AI technology and its impact on the delivery of investment advice.
One way in which AI is likely to influence investment advice delivery is through the use of natural language processing (NLP) technology. NLP technology is already being used by some financial institutions to analyze news articles and other sources of information to identify trends and patterns in the market. In the future, we can expect to see more sophisticated NLP algorithms that can read and analyze large amounts of financial data, including earnings reports, SEC filings, and analyst reports, to provide more accurate investment advice to clients.
The use of AI in investing can be broken down into two categories: research and advice delivery, and trading and strategy execution. The impact AI will have on investment advice delivery can be illustrated by the fact that this article, up to this point, was written by OpenAI's ChatGPT artificial intelligence engine.
With regard to trading and strategy execution, the future is here. In fact, algorithmic trading has been in use for nearly half a century, previously referred to as "program trading." The Financial Analyst Journal published an article in October of 1991 that included a 20-year history of computers handling trading decisions. The giant leap happening before our eyes is that humans have primarily written those algorithms. Now, AI is creating algorithms in real-time, adapting to market changes and perceived trends as they happen.
The eventual results of AI's use in investing remain to be seen. It is by no means a panacea that will eliminate risk and allow everyone to profit all the time. But judicious use of the technology and the investor's ability to deploy it properly have the potential to revolutionize the industry, both for investors and providers.
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