Artificial intelligence (AI) has become a buzzword in the wealth-management industry lately — and rightfully so. AI is already having an impact on this business and will likely lead to a paradigm shift in the way financial advice and investor communications are delivered to clients.
AI differs greatly from automation systems that rely on rules-based programming to help automate certain aspects of wealth-management processes. (Think of “mail merge” and “address correction” programs that ensure client communications get to the intended recipient.) That’s because AI enables machines to learn, over time, how to do certain tasks the way humans can. AI is the broader concept of machines being able to carry out tasks in a way that we would consider “smart” and is often augmented with machine learning — an application of AI and a branch of computer science that builds systems that can assimilate large volumes of data, then adapt output in response to growing, changing sets of data.
AI’s impact on the wealth-management industry arose a few years ago, with the emergence of robo-advisors, which measure a client’s risk profile and other attributes to recommend an optimal portfolio — all without any human intervention. But just as many wealth-management firms are now looking to robo-advisor platforms to complement their existing human advisor channel, organizations should continue to look for ways that AI can help improve other aspects of their customer service and operations models.
An obvious role for AI is in helping wealth-management firms contend with growing compliance regulation affecting risk, disclosure, suitability and transparency. Given the sheer volume of data and processes, no compliance team in the world can address these areas efficiently without AI and other tools to assist them. In fact, the Ontario Securities Commission (OSC) itself stated in March that it will explore ways to take a more innovative and flexible approach to regulation, including how they might best leverage AI.
But what does all this mean for the client/advisor relationship, which has long been the cornerstone of this business? Capco, a global management consultancy, envisions several changes to the front office, as outlined in the 2017 white paper, Transformative Nature of Artificial Intelligence (AI) in Wealth Management. Specifically, the white paper suggests that advisors will focus more on asset gathering and sales than ever before because AI will allow them to do so.
Notably, AI will run many client-related functions, freeing up the advisor’s time to perform more asset gathering. AI will create personalized investor communications for clients, sending analysis and performance reports in line with appropriate regulatory deadlines and guidelines — or more often if the AI learns from client behaviour that a certain client prefers more frequent reports. These reports will use one of AI’s capabilities, natural language generation, in which a computer writes reports based on vast structured and unstructured data analysis that contain information relevant to each client’s portfolio, according to the Capco white paper.
Then, as clients become more comfortable with machines playing a larger role in managing their assets, we will see an impact to low- and high-touch advice. Specifically, machines providing more data and analytics to clients in real time can amplify low-touch advice, providing more relevant and tailored data points to clients to help them make investment decisions. For high-touch clients, advisors will be able to become even more responsive to their needs, using AI as a tool to provide more valuable advice. Essentially, with AI providing more investment insights to advisors and clients alike, the advisor would become even more proactive at cross-selling as well as augmenting client portfolios and providing further value in maintaining the client relationship.
There’s no need to fear AI. The wealth-management organizations that can leverage the technology in even the most mundane aspects of their businesses will see tremendous efficiencies and be better positioned to defend themselves in an increasingly competitive wealth-management landscape.