Should You Get An AI Investment Manager?
- 5 days ago
- 5 min read
I am a big fan of Artificial Intelligence (AI), and have even gotten a Certificate from Babson College as well as passed two classes offered by Anthropic. I believe that AI is an incredible tool that can help us, but I also recognize a lot of challenges.
My world has been the investment world for quite a long time, and AI has invaded that world in so many ways. Many investors are trying to position their portfolios for the growth of AI, and lots of traders play their ideas short-term. This is not a good idea in my view to invest on the AI theme, but it is also not a good idea to totally ignore it. It has wreaked havoc on certain software companies this year and boosted certain semiconductor stocks. This is an extremely interesting thing to discuss, and I have addressed it previously, but that's not what I want to address today. Right now, AI investment management is getting a lot of attention, and that's what I want to discuss.
What is AI Investment Management?
Having an AI investment managed account suggests that the investor is handing over the security selection and trading decisions to an AI agent rather than a human. What this suggests is that the individual downloads an application that runs on his or her phone or computer, inputs parameters, funds it, and then experiences the results.
The way of investing has changed a lot over time, and technology has certainly played a role. AI is a technology, and this is one of the results of it. Historically, investors had to rely exclusively upon investment firms that employed humans. When I was a child, these humans were called stockbrokers, but that term isn't used much these days. Now, many people can invest on their own, and, if they do so, they trade online directly over the internet or through their phones, paying no commission at many places. Some investment firms employ registered representatives that can execute trades for a commision, like they did when I was a child, but they also offer access to investment advisers through mutual funds and ETFs. Individuals can also go find investment advisers that will manage their accounts. These are known as separately managed accounts (SMAs).
Can AI Investment Management Make Sense?
AI has improved a lot, but it has not achieved perfection. Neither will humans! It's important to understand this. AI investment management does not have to rely exclusively on AI, as it can include human input. Many AI companies are trying to make their technology work better by hiring professionals to review the output. This happens in all of the major industries, including the legal profession, technology and healthcare, and it is happening in Finance too. I have seen personally what Mercor is doing on this front, and that company is not alone. This is what can make AI make more sense in general.
So, the use of humans in making AI work better, and also investment managers keeping humans involved to a significant degree can make the AI investment management process make sense. Ultimately, AI investment management needs to produce good outcomes for investors, and this can mean higher returns or lower risk. Ultimately, investors should understand what they are getting.
For those who don't understand how this is even happening, consider driving a car. Many people are riding in driverless automobiles, enhanced by AI systems. If AI can do this, it can certainly manage money to some degree. Just like the cars, though, there can be crashes. Again, AI does not achieve perfection. Those who expect it will be perfect are going to be disappointed.
Who Is Offering AI Investment Management?
I have seen a lot of advertisements from Alinea recently on Reels, and the ads disgust me. They appeal to the get-rich quick crowd, which seems to border on illegal and is unethical.
I am no expert yet in which firms are offering AI investment management through Apps, but beyond Alinea, others include Autopilot and Range.
Alinea's ads that blew me away negatively were like these older ones on Instagram:
The current one on Reels features a young person who says how easy it is. If she had $1000, she would download the app, invest the money and watch it grow. This strikes me as overly optimistic, and it led me to look into the company. The Alinea website says front and center:
It has no information about its leaders or its history, but it does give a LinkedIn page. From there, I can see that the company was formed in June 2021 and founded by its two co-CEOs. The company has, according to this profile on LinkedIn, 11-50 employees. Its co-CEOs graduated from Barnard University in 2019 and don't have a lot of investing experience apparently. What I actually find most interesting is that the company is looking to hire a Chief Compliance Officer "to build the compliance foundation that lets us scale responsibly for the next million users."
The Claude Portfolio is Autopilot: Automated Investing, and I learned of it through Reels too. I can't complain about its ads, but to play on "Claude" and the drops of Robinhood. The ad said $9 million has been invested through the app so far. If one visits the download page at the Apple Store, it says that $1 Billion + has been invested. The firm behind it is named there as Iris Social Stock App Inc. An SEC filing from 2024 suggested that the company was formed in September 2020 in California. It also gives the website, which gives a link to the X site (230K followers and lots of tweets). That website has no information at all on the people running the company.
Range has one too on Reels, and it says "for the top 1% who don't want to pay 1% feels." No complaints from me on this! Its website does show the management team, and it lists the financial planners, several of which are CFPs, CFAs or CPAs.
I have mentioned just three, but there are many more!
How Investors and Investment Firms Should Use AI
Investors can definitely benefit from AI directly, but they need to keep in mind that the outcomes are not guaranteed to be better than what human investment professionals can achieve. I am a big believer in what Jack Bogle, the founder of Vanguard, believed: Investing in the market rather than trying to beat the market can achieve better returns. This can be achieved by keeping costs down. Does this type of investing work all the time? No! Another issue that I have discussed before is that the large-cap market can get very leveraged to just a few names, as it is now, and buying "the market" means buying these very largest stocks.
So, as I have said, investors can benefit from AI despite it not being perfect. They can use it to help them assess fundamentals and technicals of stocks or ETFs, and they can use it to gauge sentiment. I think that it is better and will always be better with human involvement at the oversight level and in building better models for the AI process.
Investment managers can also benefit from AI. First, they need to understand that all their clients are different in many ways. It is a fact that younger people tend to like technology and speed relative to older peers, who care more about other things, like the relationship with the manager, the reputation of their firm or keeping up with peers. None of this is bad, but investment management firms need to integrate technology into their offering, and using AI tools for their customers is one key way. LIke lawn mowing, investment management can be helped by tools. Investment management firms can automate certain processes and use their own data better to make better investment decisions.
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