Regular readers of our Investing Insights reports will know that we are fascinated by developments in technology that we think are likely to impact our financial lives and our lives more generally.
We share views on topics we think will interest our clients. In the past we’ve written articles on Robo-Advice; Bitcoin; Tesla, and Blockchain technology well before they reached mainstream press. You can read them online www.investinginsights.com.au
We advocate Algorithm Accountability
We have long been fans of the development of Robo-Advice. In early 2014 we wrote the article “Robo-Advice: The great financial disruption is coming” in which we described Robo-Advice as:
“In plain English, it is an online site that provides a degree of personalised advice and recommends appropriate investments at a reasonable price, to a large number of people who aren’t necessarily wealthy. It will provide you with an investment portfolio less expensively than flesh-and-blood investment advisors.”
We also wrote:
“All of this is good news for consumers. For those who can’t currently afford or don’t trust advice, this will provide them with a low cost service. For those who receive advice it will put competitive pressure on fees and services you receive. We see Robo-Advisors as the next step in the true democratisation of finance. Right now the movement in the Australian Robo-Advice space lags the rest of the world, which is not to say smart technology is not already touching nearly every part of your financial life.”
Three years on and Australia still lags the rest of the world. While today we still believe it will grow, we have become passionate advocates for ‘algorithm accountability’. Furthermore, we believe implementing algorithm accountability today while the industry is still in its relative infancy will be far easier than introducing it down the track.
An algorithm is a set of instructions (or code) used by a computer, program or application (‘app’) to solve a problem. Many algorithms are secret written by and truly understood by one or only few employees within a firm. They are what is known as a ‘black box’ (you know what inputs you enter and you see what comes out but you have no idea what happens in between).
Firms expect their customers to read the fine print of their online contract sign up forms (you know the ones, they’re long and completely ignored as you click the ‘OK’ or ‘Next’ button). You sign your life away (but hopefully not your first born child) on how this algorithm can use your private data for or against you inside the back box.
To highlight how problematic algorithms can be, recall the Centrelink problem in early 2017 when post-Christmas thousands of Australians were sent sizable debt recovery letters by Centrelink’s automated debt recovery program. Some were accurate but many included errors. The lack of human oversight and accountability in a black box system left the burden of fixing the errors on the users.
While Robo-Advice may come with all the generic warning labels (‘You may lose money’), the algorithm accountability behind such services should come with far greater consumer protections, in our opinion. For instance, if you look at the EU new laws that come into effect in May 2018,EU citizens have the right to obtain an explanation of automated decisions and to challenge those decisions. This framework leads to far greater transparency and accountability, in our opinion.
The notion of algorithm accountability should cover both the design and the oversight of these automated, code driven systems. Investment professionals with adequate experience and knowledge should be identified and held accountable for the systems a large number of consumers will rely on. Consumers should have a right at any time to challenge and examine the black box data and trading practices that impact their financial future. This includes the methodologies, assumptions, tools, and data inputs.
We heed the advice of a former US President not well known for his commitment to transparency, Richard Nixon. In a 1974 Oval Office radio address to the nation, he advocated the right of consumers to challenge and examine the data used to make algorithmic decisions (source: Radio Address About the American Right of Privacy, February 23, 1974).
So, in 2017 and beyond Quantum Financial will continue to support the consumer benefits of Robo-Advice but we will also demand algorithm accountability for Australian consumers.