As a former financial adviser having transitioned from wealth management to an artificial intelligence development and technology company, I have a unique perspective on the challenges faced by advisers and financial services companies and what could happen if they do not embrace generative and conversational AI into their businesses.
In an era of rapid technological advancement, the financial industry is no exception. With the development of generative AI, many have questioned the future role of financial advisers.
Some have asked will these machines truly replace human expertise, or will they serve as a complementary force, enhancing advisers’ capabilities?
Let us delve into the world of generative AI and examine its potential impact on the financial advice space.
What is generative AI?
Generative AI refers to artificial intelligence models capable of generating unique, high-quality content, such as text or images. These models learn from vast amounts of data and employ intricate algorithms to produce outputs that closely resemble human-generated content. As a result, generative AI has garnered attention for its potential applications in various industries, including finance.
Financial advisers perform a myriad tasks, from analysing clients’ financial situations and goals, to crafting personalised investment strategies. They also offer emotional support during times of market turbulence or significant life events.
Can generative AI replicate these nuanced human interactions?
Despite current advancements in generative AI, it has yet to fully capture the essence of personal conversations between clients and advisers. These conversations often involve tone, context and body language that AI currently struggles to interpret.
Furthermore, each client’s situation is unique, with varying financial goals, risk appetites and personal values. Although AI may be able to process quantitative data and generate tailored investment portfolios, it may fall short in addressing the qualitative aspects of financial planning.
Despite current advancements in generative AI, it has yet to fully capture the essence of personal conversations between clients and advisersHowever, as the field of AI continues to evolve, there is potential for generative AI to provide aspects of financial advice within limited (simple) advice areas.
To do this, the generative AI models would need to go through vigorous expert AI training, reinforcement learning from human financial adviser feedback, along with the added integration of additional AI and natural language processing and algorithm models.
Once achieved, this could replace financial advisers who only provide simple or, unfortunately, subpar advice.
It is also important to consider that if a financial company/fintech trains a generative AI model that could provide even basic or simplified advice and it become as widely used as ChatGPT, this could impact companies’ financial advice fees. How? Individuals may not be prepared to pay higher fees for simple advice, especially if it is free or provided at low cost.
However, numerous challenges must be addressed before this becomes a reality. Some of these obstacles include regulatory concerns, risk assignment for poor advice, and transparency related to the decision steps and reasoning for the advice given.
It is important to acknowledge that while the development of AI has been rapid, there is still progress to be made before it can fully encompass the intricacies of a financial adviser.
Real concern for advisers
The biggest worry for advisers may not necessarily be generative AI itself replacing them, but rather other advisers or companies utilising generative AI to enhance their services and outperform competitors.
Financial advisers should be more concerned about not integrating AI within their processes for greater efficiency and productivity, as the risk lies in others employing generative AI to reduce fees, improve service quality, and increase responsiveness.
With the increase in technology usage and its adoption in people’s everyday lives, the risk of being slow to adopt AI becomes more significant. Financial companies have historically been slower to integrate new technologies, and as wealth transfers from baby boomers to millennials and Generation Z, the demand for tech-savvy financial services will only grow.
It is estimated that over the next 20 to 30 years, the transfer of wealth will be anywhere between £5tn to £6tn.
Forward-thinking companies such as Morgan Stanley have already started implementing generative AI for their 16,000 advisers to improve their efficiency in the backend. Additionally, the launch of Bloomberg's own generative model, BloombergGPT, signals that it may not be long before companies begin embedding generative AI in the frontend for clients to interact with.
Advisers must be proactive in adopting AI technology to stay competitive in a rapidly changing industry.
A collaborative future
Generative AI holds immense potential to assist financial advisers in various aspects of their work. For instance, it can be employed for drafting reports, suitability letters and content creation, streamlining the process and ensuring accurate, personalised communication with clients. Moreover, its data analysis capabilities can enhance not just investment decisions, but also act as a concierge service for existing and potential clients.
Additionally, generative AI can contribute to the realm of client care by providing financial wellness and education resources. It can also aid in lead generation, assisting advisers in identifying and engaging with potential clients.
The biggest worry for advisers may not necessarily be generative AI itself replacing them, but rather other advisers or companies utilising generative AI to enhance their services and outperform competitorsFor advisers and paraplanners, AI can uncover opportunities for client engagement or perform shortfall needs analysis, thereby enhancing their service offerings.
By embracing generative AI, financial advisers can focus on the more nuanced and complex aspects of their work, such as understanding clients’ emotions, addressing unique needs and building trust.
Regulation and AI
As AI technology continues to permeate the financial industry, questions surrounding regulation and compliance arise. Currently, regulatory frameworks struggle to keep pace with the rapid advancements in AI. Regulators face the challenge of striking a balance between fostering innovation and ensuring consumer protection.
In response to this conundrum, some regulatory bodies have begun exploring new approaches, such as sandboxes, to encourage the safe development and testing of AI-driven financial services. However, it is crucial for regulators to develop comprehensive guidelines and policies to address potential risks associated with AI adoption, such as data privacy, algorithmic biases and system vulnerabilities.
Generative AI has undoubtedly made waves in the financial industry, prompting discussions about its potential to replace financial advisers. However, it is essential to acknowledge the technology’s limitations in replicating the human element of financial advice.
Rather than perceiving AI as a threat, advisers should adopt a collaborative approach, utilising AI to enhance their services and cater to clients’ unique needs more effectively.
The real concern for advisers lies in the potential for their competitors to harness the power of generative AI and outperform them in service quality and efficiency. By embracing the potential of generative AI and adapting to this new era, advisers can thrive in a world where technology and human expertise work hand in hand to deliver exceptional financial advice.
As for regulation, it is imperative that governing bodies adapt to the evolving landscape and establish robust frameworks to ensure the responsible development and deployment of AI-driven financial services.
Elemi Atigolo is a former SJP partner and co-founder of Inatigo
