Prologue:¹

• “Why did you title your article that way?” my millennial-age sister exclaimed.
• “What do you mean?” I replied.
• “Robo-Advisor X.0!”
• “You know”, I started. “X.0 relates to the mathematical optimization… I mean the selection of a best element from some set of available alternatives.”
• “No, no, no”, she interrupted. “Robo-Advisor X.0 sounds like Robo-Advisor Hugs and Kisses” she laughed.
• “Really?” I said. “I didn’t consider it that way, wait but why?”

Robo-Advisor X.0 – Hugs and Kisses

Robo-advisors are a class of financial advisers that provide financial advice or portfolio management online with minimal human intervention. Robo-advisors provide digital financial advice based on mathematical rules or algorithms. Robo-Advisors X.0 will provide digital advice using artificial intelligence applications, or rather artificial intelligence applications under Robo-Advisors X.0 control will make decisions instead of us. Robo-Advisors X.0 will offer a future of financial advice and portfolio management substantially different from the current analogue implementation of sophisticated applications as tools and realizing more ambiguous goals.

Digitization becomes the mainstream trend for all industries providing the following social and business functions:

• business processes automation
• artificial intelligence implementation.

For wealth management, as a human capital and intelligence-intensive industry, digitization plays an exceptional role.

Nowadays, quantum computing offers the possibility of technology millions of times more powerful than current systems. For example, the first project of one of the leading players in the quantum computing industry has solved the problem of designing investment portfolios. The goal was to generate the maximum return for a given risk profile to help fund managers not only choose among the thousands of available securities, but also minimize transaction costs by achieving the most optimal portfolio in the minimum number of trades. The speed of technological advancement is growing so fast.

Another example is a robot that has solved a Rubik’s cube in less than a second, while the officially recognized Rubik’s cube world record belonging to a human is about 5 seconds. Should we be concerned that robots will take over human jobs? Digital disruption is coming to change existing business models and financial ecosystems.

This will lead to two consequences:

• personal and corporate income generation paradigm
• universal basic income proposal.

The first consequence of digital disruption will be the change of personal and corporate income generation. Intellectual capital (human), information asymmetry and trust are the main drivers of income generation at the moment. Implying that intellectual capital is in line with forecasts and existing growth potential in a rapidly changing environment, information asymmetry will dramatically decrease in coming years. Most business activities could be transformed into algorithms and be automated – business processes transparency.

Trust, honest and ethical behaviour in all areas, especially in finance, will become the main driver of personal and corporate income generation ability. The emergent technology of blockchain will revolutionize the financial services industry and has the potential to reduce systemic risk and financial fraud by empowering millions across the globe to authenticate and transact immediately and without costly intermediaries. Thus, ethics and new technology will lead to the independence of future robo-advisor business models from financial institutions. That will effectively manage agency problems as well as any conflicts of interest in any relationship where one party is expected to act in another’s best interests.

To sum up, the most logical business model construction for future Robo-Advisors X.0 is as independent financial advisors.

The second consequence of digital disruption is the universal basic income proposal, or a form of social security in which all citizens or residents of a country regularly receive an unconditional sum of money, either from a government or some other public institution, in addition to any income received from elsewhere. And that is not in such a distant future as it might seem.

The universal basic income proposal has appeared due to the hypothesis that artificial intelligence and robots will replace people’s jobs in the majority of human activities. The transformational process has already started – some countries are already planning their “universal basic income” trials.

Owing to the changing and challenging environment, there should be a solution that provides people with advice, including financial advice, and tools to go through this transformation in a more favourable way. Robo-Advisors X.0 are expected to be such a solution. Independent Robo-Advisors X.0 will look after the best interests of each person and help smooth the way to self-actualization, creating the optimal situation for everyone. That will cause a significant impact on society. Robo-Advisors X.0 will change the focus from the current financial status of a person or a portfolio to the drivers of the current financial status, including health, value systems, human capital and randomness. In other words, Robo-Advisors X.0 will help optimize our lives beyond finance to make us wealthier and happier, and will support us like our family and friends do.

Can we title Robo-Advisors X.0 as “Robo-Advisors Hugs and Kisses” after all?

Robo-Advisor X.0 – Mathematical Programming Problem and Optimal Solution

For Robo-Advisors X.0, a person herself/himself becomes an object of optimization. There are different tools to solve this problem, including methods of linear and non-linear programming. In this case, such constraints as personal beliefs (which determine our lifestyle) and financial discipline and health status (which determines medical expenditures) appear in mathematical equations to drive the optimization process. Robo-Advisors X.0 will use disruptive innovations such as:

• data science, bid-data analytics
• advanced algorithms, machine learning, deep learning, artificial intelligence, robotics (including self-learning robots)
• augmented reality, virtual reality (holoportation)
• blockchain
• quantum computing
• 3D printing, including organs printing, artificial womb, etc.
• mind–machine interfaces and more.

Having determined the concept of Robo-Advisors X.0 and indicated the tools to solve optimization problems, we can now move to the implementation algorithm.

Robo-Advisor X.0 – Executive Officer

First, Robo-Advisors X.0 will analyse a person, identifying all strengths and weaknesses, opportunities and threats, which characterize the income/expenditure profile of that person, including the following areas:

• health
• system of values or beliefs, including risk profile
• randomness (life events that have significant impact on personal finance)
• current financial status.

Then, modern tools for analysis and optimization will be implemented to give financial advice and offer personalized financial plans. At this stage, Robo-Advisors X.0 will improve the financial literacy of the customer and clarify risk-management approaches. After a personalized financial plan is developed and confirmed by the customer, a portfolio of appropriate steps can be executed. Thus, Robo-Advisors X.0 use an innovative approach to portfolio management and transform themselves into planners, financial advisors, executive officers or application portfolio managers.

Summary

Disruptive digitization and tools in emerging market economies give enormous opportunities to develop brand-new business models in the digital wealth management industry. Such inefficiencies as limited financial infrastructure, lack of adequate regulation and transparency, low levels of financial literacy, unethical market participant’s behaviour and the overall problem of income inequality are considered to be constraints in the process of searching for the optimal robo-advisory solution.

Business process automation and artificial intelligence will drive change. The speed of technological advancement is accelerating; robots could replace people’s jobs in the near or mid-term. This will change personal and corporate income generation paradigms and will cause the launch of universal basic income. There should be a solution that provides people with advice and tools to go through this transformation in a favourable way.

Robo-Advisors X.0 are expected to be such a solution. Robo-Advisors X.0 will change the object of optimization from the current financial status of a person or a portfolio to the person him or herself, considering such factors as health, value system, human capital and randomness. Portfolio management is an innovative approach for Robo-Advisors X.0, where Robo-Advisors X.0 are planners, financial advisors, executive officers or portfolio managers. Using the latest technologies, new science and disciplines – like big data analytics, advanced algorithms, deep learning, blockchain, quantum computing, augmented reality, virtual reality, holoportation, mind–machine interfaces, implementing personalized decision making, goal-based investing, gamification, IT-harnessing of economics of scale – robo-advisors will make it possible to realize the best for each person (self-actualization).

Robo-Advisors X.0 will boost emerging markets. So, we’re waiting for you, Robo-Advisors X.0…