So he consulted with subject matter experts in various financial fields and hired tech people who use machine learning and natural language processing to convert the experts’ insights into algorithms.
“When you enter your client data into the software, you have an integrated wealth management team of attorneys, accountants, and insurance and mortgage brokers who are looking into your client’s situation because their brains are in the software through the algorithms,” Altfest explains.
It works like this: An advisor uploads client financial documents such as wills, trusts, tax returns and insurance policies. FP Alpha uses A.I. to extract information from those documents and then formulates recommendations to advisors, telling them where the planning opportunities are.
For now, the program costs advisors $1,500 for the first license and $1,000 for additional licenses. Altfest says those are introductory rates, and that the list price is $1,000 more for both pricing structures. Advisors license the program directly through Altfest’s firm. He says he began building the FP Alpha software in 2017, has been using it at his firm since 2018 and launched it publicly in February 2020 at the T3 conference. Altfest says FP Alpha’s development costs were “easily into seven figures.”
The product has received very positive advisor feedback, he says, adding that enhancements are coming later this year. And while he doesn’t disagree with the notion that A.I. needs significant data to produce meaningful and actionable results, he believes many RIAs generate enough digital data from their businesses to develop their own A.I. capabilities. (Altfest Personal Wealth Management is a sizable firm with a lot of numbers to work with: It manages about $1.5 billion from around 3,000 accounts, along with roughly $15 million from about 85 accounts on a non-discretionary basis.)
“You need data, but it depends on what you’re trying to accomplish,” Altfest says. “From there you can figure out how much data you’ll need.”
Dr. Strangelove
Despite the good things A.I. seemingly can do for financial advisors and the world at large, it nonetheless creates an uneasy feeling in some people. After all, artificial intelligence conjures images of science fiction run amok where algorithms (and governments that use these algorithms in a heavy-handed way) control our lives and compromise our privacy.
“There’s something in A.I. called the ‘creepy factor.’ It’s a thing,” says Rembe from Envestnet. “People ask, ‘How do you know all of this?’
“One thing we spend a lot of time on is our A.I. governance model,” he continues. “If you just have A.I. without human oversight and the governance model, you can run into things like gender and racial bias that can negatively impact consumers. You can’t just let A.I. run wild because it’s built by humans and can make mistakes like humans do. And unless you have a human to look for and evaluate those mistakes, it will make those mistakes.”
Ram Nagappan at BNY Mellon | Pershing says his firm puts an emphasis on removing the mystery of how A.I.-driven results are derived.
“With the A.I. models that existed, nobody could explain how it came up with its results. It was like a black box,” he says. “Now, people are working on providing what I call an ‘explainable A.I.’ that gives people the confidence to adopt these things. If you don’t understand it, sometimes it might not work right and you might make wrong decisions. Compliance teams want to know how decisions are made.”
On both the Pershing and Envestnet platforms (and presumably other platforms offering A.I. solutions), some of the tools are baked into the overall package that advisors sign up for, while other solutions cost extra. Regardless of how A.I. is packaged and used, it appears that advisor-centric platforms are engaged in an arms race involving artificial intelligence.
“A.I. will continue to be a competitive differentiator for what Pershing has to offer versus Schwab or Fidelity,” says Reddel from Accenture. “They have been competing on their digital platform and access to products. I think A.I. insights will be the next frontier on how to compete.”
A lot of people are gung ho about A.I.’s potential benefits for the wealth management profession. After all, it’s part of the inevitable progression of technology in this industry. But you can’t fault people for being wary of getting too cozy with this potentially all-consuming technology. One of the takeaways from the Frontline investigation—and something that has been discussed often in many other circles—is the likelihood that A.I.-driven automation will destroy countless jobs across many industries. While it seems unlikely that robots and algos will someday displace the friendly neighbored financial planner, who would have thought robots would be viewed as a solution for eldercare? (And can A.I.-linked algos create Ponzi schemes that make Bernie Madoff look like an amateur?) For now, these are probably just hyperbolic ruminations.
“We believe there will always be a place for human-led advice,” Reddel says. “The way advice will manifest itself in the future will be materially different, and without A.I. it will be hard for most advisors to compete in terms of providing the right insights.”
Perhaps someone should create a movie called, “Dr. Strangelove or: How I Learned to Stop Worrying and Love A.I.”