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Why advisers should embrace AI’s potential

  • Understand how AI is affecting the advice process
  • Gain an insight into the FCA's concerns about AI
  • Be able to describe the types of AI being deployed
CPD
Approx.30min
Why advisers should embrace AI’s potential

A great deal has been written about whether financial advisers will eventually be replaced by robots, but evidence is still scant. 

Robo-advice, still deemed the principle threat by most, is yet to become a serious challenge to the traditional advice model, despite the best efforts of some firms: Nutmeg’s growing reputation but continued losses are a case in point.

More broadly, however, technology has unquestionably proved an important aid for advisers when catering to their clients. Change has been quicker to materialise on this front, and a process that still sounds far-fetched to some – artificial intelligence – may ultimately prove to be a key component of future advancements.

The essence of AI is to develop machines, processes and robotics that effectively act like humans, such as the Siri function on Apple’s iPhones.

In the investment space, AI has been deployed through algorithmic trading for a number of years. But the adoption of AI in personal finance is still very much in its infancy, and the risks have not gone unnoticed.

In a speech on November 19 2018, Rob Gruppetta, head of the financial crime department at the Financial Conduct Authority, sounded a note of caution: “Innovation should not be embraced without scrutiny, and the current AI boom is no exception, as professor Michael Jordan, world-renowned AI researcher and professor of statistics and computer science at the University of California warned earlier this year. 

“He said that, just as we built buildings and bridges before there was civil engineering, we’re currently building large, complex AI decision-making systems in the absence of an engineering discipline with sound design principles.”

Mr Gruppetta added that just as early buildings and bridges sometimes fell to the ground unexpectedly and with tragic consequences, many early AI systems are exposing serious flaws in how we’re thinking about the subject. 

“While the building blocks of AI have started to emerge, sound principles for putting them together haven’t been developed yet. So as a regulator, a degree of scepticism about innovations like AI is rational.”

But intermediaries and the advice industry as a whole are still encouraged by the potential.

Kay Ingram, chartered financial planner and director of public policy at LEBC Group, says AI is already helping to speed up the advice process.

She says: “AI helps with the analysis of technical data; for example, calculating the prospective pension of a scheme member at retirement. Complex scheme rules, revaluation factors and so on can involve multiple calculations, which AI can perform more quickly and accurately. 

“AI can also identify those aspects of advice that are likely to be most relevant to the consumer. This can be identified and addressed in a report, so that the adviser can spend more time focusing on the aspects of the advice that matter to the individual.”

Knowing your customer

This is only the latest phase in a process that has been developing for some time. As Ben Goss, chief executive of Distribution Technology, notes: “If you go back 15 years, the industry was using a pen and the back of an envelope to assess risk and in some cases build portfolios. There was a time when technology being used in the advice process was seen as a tick-box exercise, but today it’s seen as a really important part.”

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. Mr Gruppetta says innovation should not be embraced without what?

  2. According to the research by Gartner, what percentage of finance departments expect to deploy AI by 2020

  3. According to Mr Goss, what could be used to "identify potential patterns in both investment and investor behaviour to provide advisers with prompts and considerations"?

  4. Mr Ford says RPA is particularly helpful for satisfying what for advisers?

  5. What does Ms Ingram says about companies that do not embrace AI, in terms of the delivery of affordable advice?

  6. According to Mr Goss, AI from what sector could be replicated into the financial planning process?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Understand how AI is affecting the advice process
  • Gain an insight into the FCA's concerns about AI
  • Be able to describe the types of AI being deployed

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