FCA 'bullish' about adoption of AI but advisers must be aware of risks

Speaking to FT Adviser, Twigg discussed how AI is going to transform the industry and highlighted the due diligence firms will need to do before implementing tech into their systems. 

Twigg said he had a meeting with FCA chief executive Nikhil Rathi a few months ago to discuss the growing interest of AI in the sector.

He said: “Rathi was super bullish on the adoption of AI, his catchphrase was 'I don’t let regulation get in the way of innovation'.

“We’ve got some long standing challenges in the industry such as the advice gap and productivity challenges and finally we might have a technology solution that can help solve them. 

“And so the FCA are optimistic about the adoption of this tech but only when it's in a human plus fashion, meaning you're wrapping the tech around people to make them more efficient. You're not replacing large swathes of advice with AI advisers.”

 Nothing new needs to be invented now with AI, it's all about adoption Joseph Twigg, Aveni

Twigg said he was “utterly convinced” the industry was going to be “fundamentally transformed” in the next couple of years. 

“Nothing new needs to be invented now with AI, it's all about adoption. And what we're seeing across the financial advice sector is the green shoots of product market fit. 

“People are starting to ask us how our productivity tool works, how much time it will save them, how our compliance tool works? And the next step is going to be different parts of the value chain coming together,” he added. 

Twigg said it will get to a stage where back office systems in collaboration with the AI will create a level of automation that will change things for advisers.

He said: “The ultimate objective within a couple of years is that a typical financial adviser will turn up to a meeting, will build a relationship with their client while everything else will be taken care of by the tech.

“CRM admin, report writing, the financial plan, everything will be taken care of but advisers will still have a place because people want to speak to actual humans when making material life choices.”

Advisers becoming proactive with AI 

Twigg said in the past six months he has noted a real step change in the advice market with advisers proactively reaching out to suppliers in the AI software space.

Having AI software embedded into an adviser's daily workflow is going to bring “substantial change” according to Twigg.

“Having the AI as part of a CRM system or as part of your platform is going to bring real benefits but it's going to take a year to 18 months of working with industry and partners to iterate these products and to make sure firms are finding the right areas that advisers really value,” he said.

Fully AI enabled advice workflow will probably allow an adviser to see two to three times more clients than a fully manual process Joseph Twigg, Aveni

Twigg believed this year would be a “wake up moment” for advisers, as increasing numbers will start to realise the true value of AI.

“So many more advisers are going to start realising the benefits of even just having their meetings recorded. Not only does it capture the data for the AI it really manages the risk of an adviser's business. 

“If a client were to turn around and say they had received bad advice an adviser can pull up their meeting recording and then anything that was said can’t be down to interpretation because it is all there,” Twigg added.

Twigg also believed AI will genuinely have a “huge impact” on an adviser's ability to serve, administer help and manage compliance and the industry should embrace it.

He said: “Fully AI enabled advice workflow will probably allow an adviser to see two to three times more clients than a fully manual process. You think about that in terms of the economics of an advice business. If you can see three times as many people, your business is three times bigger and three times more profitable, meaning more revenue. 

“That will be the stark choice advisers will need to make when deciding whether to use AI or not.” 

Technology risk 

Twigg said as the adoption of AI will continue to grow in the sector, he warned advice firms need to be aware of the technological risks of using it and to do their due diligence when choosing a supplier.

He said: “Just in the last three or four months I have seen six or eight businesses come to market all offering AI tools.

“These companies are taking your client’s highly sensitive data and sending that somewhere. Do advice firms know where it's going? Do they know if any of that information is being retained? Has the firm done its due diligence that the processing engine is GDPR compliant? How do you know the data is secure?”

Utilising your client’s data in a relaxed fashion can have a material impact on the way that your business is perceived in terms of trust Joseph Twigg, Aveni 

Twigg said he found these questions were not being asked in the advice space currently. 

Which he said could have implications for advisers in terms of damaging their reputation, if clients data were to be leaked.

“If you are utilising your client’s data in a relaxed fashion it can have a material impact on the way that your business is perceived in terms of trust. 

“Then there's GDPR and other regulations. You've got the prospect of regulatory censure and investigations. It could cost an advice firm money, and it's going to do their business no good. 

“So it's worth making sure that advisers put the additional effort upfront, to make sure that their client’s data has been handled in an appropriate way when looking to purchase AI tools,” Twigg said.

Twigg said it was the small and medium sized advice firms that needed to be more aware of the risks due to not having as many compliance protocols in place compared to larger firms.

He said: “In a typical large financial services enterprise in the UK onboarding can take anywhere between three and six months after a decision has been made to purchase a product or use a supplier. 

“During that time, the seller typically gets asked for information security, data security and has to fill out an AI ethics questionnaire. Which consists of around 300 questions looking at how your system works, where the data is stored, how it's processed. The firm is really trying to get high levels of detail about the seller.

“However, when you move into small to medium sized financial advisers, they typically will just sign an NDA with the supplier. They might ask one or two questions, but they have no idea what's happening with their data. They have no idea whether what the supplier or provider is doing is good, bad or indifferent.”

Twigg believed more effort needed to be put in from advice firms to understand what was appropriate or not. 

“Regardless of the size of your business the risk is still the same, at the very least firms need to have an awareness of these risks and need to start asking suppliers the right questions around data and information security,” he added.

alina.khan@ft.com