Module 4, Summary

Summary
Lesson 1 of 1

Summary

In this module, we focussed on financial planning services. Often investors seek professional
assistance with activities that they either cannot or choose not to do themselves. Some of these
activities include determining financial goals; identifying potential investments; evaluating the
risk and return prospects of potential investments; trading securities and assets; holding,
managing, and accounting for securities and assets during the periods of the investments; and
evaluating the performance of their investments.

Financial planners help investors set their financial goals and determine how much
money they should save for future expenses and/or how much money they can
spend on current expenses while still preserving their capital.

Next, we looked at how fintech is changing the financial services industry, and in particular,
how it is changing investment advice, financial planning, business lending, and payments.

AI generally refers to machines acting within the context of the intelligence they
have iteratively improved as they collect information, which implies the ability to
learn and adapt. The use and application of AI has led to rapid innovations within
financial services.

AI has been instrumental in advancements in credit assessment, fraud detection,

risk management, trading, personalised banking, and process automation.

The prevalence of the use of AI in financial services has led to the rise of many
ethical implications around the issues of bias, accountability, and transparency.
Lastly, we went over the specific ways in which fintech applications are transforming the world
of finance.

Financial analysts no longer limit themselves to studying financial statements,

economic reports, and market indicators but also dive deeply into the stories told by
non-traditional data from non-traditional sources, which must be integrated into
the investment decision-making process. Fintech supports the development of
analytical tools that aid in this process.

Big data (or alternative data) encompasses unstructured data generated by financial
markets, businesses, governments, individuals, sensors, and the ’Internet of
Things’. The characteristics of big data di er from those of traditional data in four
core ways — volume, variety, velocity, and veracity.

AI is especially valuable when dealing with complex and nonlinear relationships

that are beyond the scope of traditional quantitative methods and statistical
analysis, such as insights on human sentiment and behaviour. Natural language
processing is a set of techniques that begins with transforming unstructured text
data into structured (i.e., machine-readable) data, and then classifying or clustering
it to extract useful information. Stock sentiment analysis and theme extraction and
identification are two examples of such applications.

Algorithmic trading is the computerised buying and selling of financial

instruments, in accordance with pre-specified rules and guidelines. It provides
speed, anonymity, and lower transaction costs. High-frequency trading (HFT) is a
particular form of algorithmic trading that pulls in large amounts of data from
traditional and non-traditional sources to automatically place trades when certain
conditions, such as mispricing, are met.

Robo-advisers make algorithmically driven investment suggestions based on client

data, and they have a role to play in the automation of personal wealth management
services and in providing investment services to a larger number of retail investors
at a lower cost than traditional adviser models can. Two services dominate robo-
advice: fully automated digital wealth managers and adviser-assisted digital wealth
managers.

Fintech banking via mobile phones has generally made bank services more
convenient; however, an increasingly cashless society carries societal impacts,
including people losing their jobs and the potential for reckless spending.
 DeFi is an umbrella term for financial services and financial instruments that do
not rely on intermediaries, such as brokerages, exchanges, or banks. Blockchain
technology provides the foundation for DeFi and cryptocurrencies. DeFi platforms,
via smart contracts on public blockchains, allow people to lend or borrow funds
from others, insure against risk, earn interest in savings-like accounts, and trade
cryptocurrencies. Broadly speaking, blockchains are created by (decentralised)
networks of users who use digital ledgers to securely engage in transactions and
maintain records of ownership. Because the digital ledgers are duplicated and
distributed across the entire peer-to-peer network, making the information about
the transaction immutable, blockchain technology promises to create the same
level of investor trust that historically required third parties, such as clearing
houses.

DeFi provides solutions to some of the problems identified with centralised and
traditional finance, such as centralised control, limited access, ine ciency, lack of
interoperability, and opacity.

Module Glossary

In this module, you learned the following terms (in order of appearance):

Lesson 1: Needs Served by the Investment Industry

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No new terms introduced in this lesson.

Lesson 2: Financial Planning Services

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Financial planners: Investment professionals who help their clients set their financial goals
and determine how much money they should save for future expenses and/or how much
 money they can spend on current expenses while still preserving their capital.

Payout policies: Guiding principles that specify how much money an institution, such as a
foundation or an endowment fund, can take from long-term funds to use for current
spending.

Lesson 3: Introduction to Fintech

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Fintech: Refers to technology-driven innovation in the financial services industry, and can
also refer to companies — often new, start-up companies — involved in developing these
technologies and to the wider sector they are a part of.

Lesson 4: Fintech Applications

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Blockchain: A system of record-keeping that is maintained by independent computers in a

peer-to-peer (decentralised) network.

Cryptocurrency: A digital currency composed of encrypted data that acts as a medium of

exchange.

Up Next

In the next module, we will look at how ethics and regulation are key forces driving the
investment industry, how critical trust is, and the benefits that ethical decision making brings
to the investment industry and society at large.