Depending on who's speaking, artificial intelligence will either usher in a period of unprecedented productivity or the downfall of humanity. Ironically, both of these opposing opinions are held by some of the very experts responsible for the incredible advances we’ve seen in this technology over the past several years.
The surge of interest and popularity in AI has resulted in countless articles and opinions devoted to how these tools will change every industry, including the wealth management space. However, these authors tend to be highly opinionated on the subject and often fail to consider opposing viewpoints.
Demographic realities — the advancing average age of financial advisors coupled with a population amid a multi-trillion-dollar generational wealth transfer bubble — require the financial industry to make substantive changes to its approach. Firms have implemented digitization efforts over recent years to great success and have streamlined operations through targeted consolidation, but this will not be enough.
Wealth management firms need to think critically about why AI may work for their industry, why it may fail and how it can address the shifting needs of its clients and advisors during this pivotal period.
Ultimately, the answers to these questions are predicated on how the industry and its individual practitioners define success or failure. Importantly, to give this technology a fair chance, we will need to have the patience to allow for development and improvement. AI solutions in the financial services industry are still in the early stages of development and adoption. It’s unreasonable to expect perfection or revolutionary change in the near term.
Why It Will Work
Most advisors love interacting with clients. I’ve yet to meet an advisor who ranks as a most enjoyable tasks like documenting client meeting notes into their CRM system, completing paperwork or tending to other regulatory and compliance requirements. Many of the tools that we rely on today to help alleviate the burden of these back-office tasks are automated and help a great deal — but they are not enough.
AI-enabled solutions can take these tasks off the desks of advisors and support staff while also reducing costly errors. The adoption of AI solutions has been shown to boost efficiency and satisfaction for both the advisor and the support staff tasked with these roles
Our industry is waging a war for talent at both the client-facing advisor rank as well as back-office and administrative support level during a period of increased demand for professional advice and guidance. As a profession we need to continue to focus on working smarter, not just harder. If properly utilized in a thoughtful technology stack, the AI tools available today and those slated to be introduced in the near future can go a long way to helping firms serve clients to the best of their ability\ while not overtaxing existing staff.
While there will always be a segment of advisors resistant to change, most now see the potential and understand the role AI can play in doing work that used to be done by people and that serves to benefit all.
As advisors more deeply adopt solutions into their practices, they must never lose sight of the importance of human review and oversight. As with any technological advancement, we need to guard against the risk of becoming complacent. Relying too heavily technological solutions to perform accurately and flawlessly often leads to disappointment and frustration.
Why It May Fail
AI technology continues to evolve rapidly at odds with most regulatory and compliance functions, which move slowly. The intentional, deliberate approach regulators take is slow and reactionary, which is intended to protect all parties. If regulators choose to stymie the application of AI across the industry in critical support and operational spaces, the sector may be left behind or unable to make necessary fundamental changes now to use these technologies for a few innovation cycles. This would hurt applications and undoubtedly reduce adoption significantly. Ultimately, this will be a delicate balancing act: Moving quickly yet cautiously to avoid painful missteps. Only time will tell if the industry moves at the right cadence.
Additionally, if there is a major shift in market growth, firms may be unwilling to invest capital in new systems, even if they do promise the potential to drive long-term efficiencies. This is doubly true if they encounter regulatory headwinds for adoption.
No matter what new tools or solutions are applied, firms and regulators need to ensure the proper usage from a regulatory and governance perspective. While it may result in a bottleneck for the time being, thoughtful application of this technology now will yield better results down the road. As is often said, an ounce of prevention is worth a pound of cure. Advisors should remain patient and allow the compliance side of our industry to catch up with innovation.
What Questions Aren’t We Asking?
The needs of advisors and their clients are changing. There seems to be less time in the day and more to do — this is especially true for growth-minded advisors. Next-generation advisors are faced with difficult choices regarding growth and with a wave of expected retirement and massive generational wealth transfers on the horizon, there will be even more work to do in years to come
There are many tools available on the market that can deliver efficiency. Within this context what aren’t we asking?
How and to what extent should AI change our industry, is chief among these unasked questions. If we expect AI solutions to enable financial advisors to “take the hands off the wheel,” it’s likely to be an operational failure and a massive disservice to clients. However, if AI is used as a tool to automate the business, providing capacity and scalability to an advisor’s businesses, it could likely prove to be a big tailwind.
Understanding intent will be critical because wealth management remains a relationship-based business. Regardless of the tools used, clients need to trust that an advisor not only has their best interests at heart but understands them as people. The humanity of this industry cannot be replaced—yet.
Brian Bunker is a Senior Director and Head of Practice Management Consulting for Stratos Wealth Partners, a fast-growing RIA.