AI Meets Finance : The Rise of AI-Powered Robo-Advisors

Abstract

The financial industry has experienced a revitalization due to the evolution of financial technology (fintech). Contemporary banks operate distinctly compared to previous years. Mobile banking applications, digital wallets, and blockchain technology are advancing financial inclusion and accessibility, especially for individuals without bank accounts. A significant advancement with substantial implications is the utilization of artificial intelligence (AI) for real-time data analysis, personalized solutions, and predictive analytics. One significant development in this space has been the rise of robo-advisors — automated, algorithm-based investment and planning services powered by artificial intelligence (AI). They started from basic concepts like Modern Portfolio Theory and turned into complex and highly used systems that use any of the machine learning, neural networks or reinforcement learning techniques. Since their inception, robo-advisors have transformed from niche tools for retail investors into all but dominant instruments for many of the largest financial firms in the world. The evolution of robo-advisors is analysed in this study; the platform for which was created in the aftermath of the 2008 financial crisis and developed from there to boom in popularity, with personal finance being further integrated into artificial intelligence from there. Natural Language Processing (NLP) for chatbot assistance, deep learning model for sentiment analysis, explainable AI (XAI) for better interpretability. This spans new themes like generative AI for accurate financial planning and advisory, quantum computing for portfolio optimisation or alignment, and live transaction agreements or smart contracts via blockchain. Nevertheless, these democratizing effects have brought some challenges such as data privacy, algorithmic bias, and regulatory compliance. In this article, the author anticipates future robo-advisors would have to explore ways to combine new initiatives, ethical problems and trust from end-users. This will result in a financial system that is more transparent, faster, and safer.