Envestnet uses A.I. in several ways including collating and analyzing various financial activities across an investor’s entire financial picture beyond just investments, and then employing what Rembe calls hyper-personalization, or tailoring specific action for a certain client or client type based on the data gleaned about their spending habits, credit risk levels, personal interests, investment preference or other attributes that enable an advisor to provide targeted service.
“That helps the advisor suggest the next best action they should take for a client,” Rembe says.
Envestnet also looks at how wealth management firms interact with clients via A.I. One of its offerings to advisors is a chatbot, added in 2019 when it bought Abe.ai and its A.I. assistant with a voice-and-message enabled interface. Chatbots use software that employ natural language processing and machine learning to communicate with people via voice or text.
“We’ve seen big adoption among wealth and financial institutions, and even in retail banking, where A.I. and the conversational interface has gotten good enough where clients expect to be able to not just click through a bunch of buttons but to have a conversation with their technology and get more answers in an omnichannel environment,” Rembe says. “Things like this are the next generation of where people are going. And people are getting more comfortable with that and expecting that conversational user interface.”
Hype, Or Reality?
Sounds great, but have wealth management firms bought in to the A.I. concept? The picture is muddy, at least according to a report put out late last year by Accenture that surveyed 100 technology and business C-level executives at wealth management firms in the U.S. and Canada.
Among the report’s nuggets: 84% of respondents believe A.I. will transform their industry in the next five years, but just 28% are currently scaling it across their businesses, and 85% believe the promise of A.I. within wealth management is currently more hype than reality.
According to the survey, the technology is seen more as something to use behind the scenes than for applications that face clients. Specifically, 65% of respondents believe A.I. can create the most long-term value in the back office, while only 35% see it as a way to boost the client experience and engagement.
“They’re using A.I. effectively in narrow-sleeve use cases,” says Scott Reddel, managing director and leader of Accenture’s wealth management and capital markets practice. “The maximum value being reported is the middle or back office relating to automation, efficiencies and those kind of things. It’s definitely more tangible there, because you can see where the efficiencies are being created and where the cost reductions are.”
Indeed, Accenture estimates that around 30% of an advisor’s daily activities could be automated through A.I.
“But no one is really using it at scale across the breadth of the value chain or rolling it out to their advisors in a meaningful way,” Reddel says. “Our view is that A.I. will do for the next decade what digital did for wealth management during the past decade in terms of transforming the advice that has been delivered. We did some of our first A.I. work with wealth managers four years ago, and there have been incremental improvements rather than a wave of change.”
Reddel notes that big wirehouses, large broker-dealers and the B-Ds attached to large financial services firms are focused on building A.I. capabilities themselves. They have the resources to hire the people or acquire the technology to make it happen, though it has been slow going thus far.
“A.I. has been on the agenda of some of the bigger players for the past few years, but there has been a bit of organization fatigue in terms of when they’re going to realize the value from that,” Reddel says. “You have to invest a material amount, and there’s a bit of lead time required to create the foundation that unlocks some of that value.”
Wealth management firms in the mid-market and independent space, he adds, can tap into companies and platforms that provide A.I.-related insights and tools that can be tailored to their advisors’ needs.
One RIA’s Solution
Necessity being the mother of invention, some financial advisors have taken the initiative and shown that they don’t have to be Fortune 500 companies or Silicon Valley upstarts to develop effective A.I. platforms on their own.
Andrew Altfest, president of Altfest Personal Wealth Management in New York City, worked with technologists and more than 40 subject matter experts to develop FP Alpha, billed as a wealth management solution that enables advisors to scale their holistic planning efforts across 17 financial disciplines in four main subject areas: planning (including estate, divorce, cross-border planning, etc.); savings (including expense analysis); protection (which involves various insurance products); and lending (which includes student debt and mortgages).
The idea for FP Alpha came to Altfest while he was trying to do holistic planning for clients beyond retirement planning and investments and reached a “pain point.” It was a massive time crunch working on taxes, estates, insurance, lending and the like, which all require checklists and spreadsheets, as well as the time to read wills, trusts, insurance policies and tax returns.
“To apply holistic planning, you have to do this work manually,” Altfest says. “There’s no way to scale it, and perhaps you have time to do this type of planning only for your wealthiest clients. I didn’t understand why software wasn’t serving this space. I connected with other financial advisors, and they basically said, ‘If you build it, we’ll use it.’”