Big data

I recently asked one of the leading GPT (generative pre-trained transformer) platforms how artificial intelligence (AI) is changing the wealth management industry. The response was, not surprisingly, bullish.

“AI is already making waves in the wealth management industry, and its impact is likely to grow,” the AI chatbot said. It went on to explain that AI could shake up the industry in several areas: robo-advice (automation of investment advice), data analysis (faster processing of massive datasets), algorithmic trading (trade execution at speeds and frequencies beyond human capacity), customer service (chatbots and virtual assistants), fraud detection (identification of unusual patterns in financial transactions), portfolio management (portfolio optimization through monitoring and adjusting asset allocations) and cost reduction (productivity gains across the wealth enterprise).

This AI-driven list raises the question, What aspect of wealth management will be unaffected by this exciting technology?

AI tools are already available and becoming ubiquitous, suggesting that the genie is out of the bottle. A prominent example of how advisors leverage AI is the use of GPT models for client-facing marketing and sales content. AI democratization means that advisors with limited technical know-how can unleash AI’s power without the wealth firm’s technology or compliance team’s involvement. Importantly, the fact that advisors and other wealth management professionals are using AI to perform regulated functions has captured and will continue to capture the attention of regulators globally. This moves the urgency of the AI conversation from the future to today.

In a recent conversation with one of our industry’s leading regulatory experts, I learned that any notion that AI is something to think about down the road is misplaced. He is nearing retirement and previously thought AI would be a technology for the next generation of leaders to sort out. He no longer feels that way.

Looking at the fulsome list of AI functions that our chatbot claims will transform our industry, there are two key categories that have vastly different implications for wealth firms and regulators.

Process automation that includes data analysis, compliance and customer service represents automation opportunities that are not radically different from technologies we have all used in the past. However, using AI to augment or replace portfolio management, investment advice and trading raises a different set of questions and challenges, both practical and ethical, for wealth firms and the industry more broadly.

A recent proposal from the U.S. Securities and Exchange Commission urged firms to evaluate whether using certain technologies such as predictive data analytics and AI technologies, including machine learning, deep learning and neural networks, might create conflicts that place a firm’s interests ahead of investors.

On the process automation front, there are exciting technologies that are already embedded in wealthtech solutions. We recently saw a powerful Grammarly-like AI technology that provides real-time support for reviewing marketing content, which is a very hot regulatory topic. Rather than relying on human review of content, this GPT engine provides immediate and consistent recommendations on how marketing content can be edited to meet a firm’s compliance requirements.

Another technology monitors off-channel advisor communications — also a prime focus for regulators. Again, AI provides real-time feedback on how messages might be edited to stay onside of compliance requirements.

These technologies simply make advisors and firms better, faster and more compliant. Adoption of these process automation tools is well underway and will accelerate in the near term.

The more revolutionary application of AI using algorithms for financial decisions and striking the balance between technology and human expertise will come under greater scrutiny from regulators and other industry stakeholders.

While the long-term trajectory of this technology’s automation of key aspects of our industry appears to be unstoppable, the industry is taking a cautious approach by weighing both the opportunities and challenges of AI.

David Reeve is CEO of InvestorCOM Inc., a compliance technology provider to the wealth management industry.