CFA Institute Survey Points to Lag in Big Data and AI Adoption

Survey results suggest investment managers are hesitant to deploy fintech solutions with uncertain cost-benefit tradeoffs.

CFA Institute partnered with the Higher School of Economics in Moscow to survey 250 investment professionals about the extent of use of artificial intelligence (AI), machine learning (ML), and big data within their respective areas of expertise and their firm as a whole. Respondents came from either the Asia Pacific region, EMEA (Europe, Middle East, and Africa) or the Americas with listed professions in investment management, risk, and compliance, finance, or other departments within financial services. Three major trends emerged from our study: 

1. A large percentage of investment professionals do not use AI or ML in their work.
2. There are very few regional differences in the use of AI and ML.
3. Larger firms have the upper hand in fintech deployment.

This 2020 fintech study was a follow up to a 2016 CFA survey that revealed significant hurdles in the effort for firms to adopt fintech, namely cost, talent, tech leadership vision, and resources such as time. A prevailing hesitancy to implement uncertain and costly fintech systems was revealed in all but the largest of firms, with most deciding the cost-benefit trade-off was not feasible to deploy at scale. 

How disruptive is fintech?

Both surveys we conducted were part of an effort to examine the level of disruption fintech is having in different regions and across financial services departments. In 2016, the major areas of promise were the use of automated investment tools (robo-advisors) and marketplace lending, followed by blockchain technology. Since the 2016 study, robo-advisers have become part of the landscape, but they have mostly disappointed as far as their ability to make money and disrupt the industry. Marketplace lending has likewise faded from the headlines, while blockchain has struggled to attain mainstream adoption.

Blockchain use cases identified in the earlier study were clearing and settlement, alternative currencies, and commercial banking. Settlement and banking use-cases have failed to materialize at scale as the economic benefits of permissioned yet distributed ledgers have not been convincing to-date. Alternative currencies number in the thousands in an unregulated yet dynamic digital asset industry, which as of 2020 plays a niche role for institutions.

Our June 2020 survey offered many insights into the level of penetration fintech has had in investment management and financial services. Below are some of the highlights, with a link at the end of the full report. 

Key Takeaways

1. Half of the investment management respondents are currently not using big data or AI for risk management across all three regions. Furthermore, 10% to 15% did not know whether their firm was using big data or AI.
2. When asked if compliance departments were using fintech (such as blockchain, ML, or AI) for use in counterparty verification/KYC, larger firms and the EMEA region reported higher levels of participation.
3. The vast majority of respondents have no position in new financial instruments such as cryptocurrencies, and very few were using AI or ML to assess risk and compliance for such digital assets. Firms with 5000+ employees were most likely to have used fintech in this area.
4. An overwhelming majority of respondents said they don’t use big data analysis to predict client behavior. Larger firms are more likely to do so. A small percentage (12% to 19%) already use big data to manage operational and compliance risk.
5. When asked if their firm invested in fintech companies or fintech investment opportunities, most answered no. Only 20% of respondents said their firm has 1% of assets under management invested in such assets, mostly coming from very large firms.
6. Some 58% to 69% of respondents said their firms don’t use big data at all for market research toward investment decisions. Firms with more than 5000 employees were more active in the use of big data at 39%, while only 13% of companies with under 50 employees were reported to use it. 
7. All three regions generally agree that regulatory changes are needed to manage the rise of new technologies in financial services. Asia Pacific stood out here, however, with 23% to24% answering that major change was needed, while the Americas’ respondents felt that current regulatory frameworks were sufficient or needed only slight amendments. 

Summary of CFA Institute’s Fintech Survey 2

The results from the CFA Institute’s second fintech study suggest that the evolution of fintech is happening much more slowly than previously thought. In addition, the biggest firms appear to be the only existing vector for fintech adoption, having the resources to test and implement niche use-cases for AI and big data while following a strict cost-benefit trade-off approach. 

To learn more, read the full report here: https://www.cfainstitute.org/en/research/survey-reports/fin-tech-survey-2-four-years-later

Image Credit @ Getty Images/ MR.Cole_Photographer