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It is not a matter of “if” but “when.” Life is all about timing, and generative AI (artificial intelligence) is a fast-moving mega-trend that will transform the wealth management industry, eventually displacing today’s wealth managers.
Generative AI is one technology under the AI umbrella. However, while generative AI will enhance wealth managers' efficacy in the short term, there will quickly come a time when today’s wealth manager will be an anacronym.
To be clear … A wealth manager is a client-facing professional providing financial products and related services to optimize clients' financial lives.
This description has three major components:
• Client-facing
• Providing financial products and related services
• Optimize the financial lives of clients
Based on this definition, wealth managers' roles and responsibilities will dramatically differ by the turn of the decade. The critical factor in determining how generative AI replaces wealth managers is “client-facing.” That is why, before generative AI completely replaces all wealth managers, it will eliminate the need for almost all technical specialists.
The End Of Technical Specialists
Before the wealth manager metamorphosis, technical specialists will be nearly eliminated. A few will remain who, in conjunction with generative AI, provide truly customized solutions and develop new ones.
Suppose clients need life insurance to pay estate taxes, create an estate, or protect family ownership in a business. In that case, they can rely on a life insurance specialist to identify the best policies and help structure the transaction. Clients who need succession and estate planning can turn to wealth planning specialists, such as T&E attorneys, to address the plan's mechanics, including what trusts and other structures help transfer assets cost-effectively.
The technical specialists are consulted when the wealth managers (again, the client-failing professionals) need expertise they do not possess. This scenario does not change whether the specialists are part of the wealth manager’s team or external experts.
At the high end, technical specialists' proficiency is mostly indistinguishable. A spousal limited access trust, a charitable remainder trust, and so forth are comparable no matter which specialist produces them. Similarly, there are only so many ways and options to develop a life insurance portfolio for the super-rich. In the private wealth industry, client-level technical innovations are copied very quickly. Thus, there is nothing inherently proprietary in these wealth management solutions.
Except where the niche technical specialists are innovating, such as developing new concepts as they explore the tax code or design new investment vehicles and strategies, they will mostly be replaced by generative AI. Even then, generative AI will be intimately involved in uncovering bad punctuation, glitches, and unintended consequences in the tax code. Niche technical specialists will be needed only in cases where innovative wealth management solutions are required, which is far from the norm. Thus, generative AI will make most specialists redundant.
Thanks to generative AI, most technical specialists will no longer be needed by 2030. A significant determinant of the timing is the extent to which politics becomes an issue, such as the Robot Restriction and Coastal Defense Against Climate Change Act of 2028. The more politicians and pundits get involved, the longer it will take for the technology to replace the technical specialists, but they will be replaced.
Generative AI in replacing technical specialists benefits clients and professionals that will evolve from the current wealth managers. With generative AI, determining appropriate wealth management solutions becomes quicker and more cost-effective. Instead of involving flesh-and-blood technical specialists, the expertise will come out of a box. Also, technical specialists will not need to meet with clients as generative AI will provide the appropriate narratives and explanations for clients that the new client-facing professionals will somewhat customize. Generative AI will be faster and significantly less expensive. To be clear, there will still be the need for niche technical specialists, but at the client level, very few.
So, generative AI will make most client-level technical specialists obsolete; what about wealth managers?
It Is Only A Matter of Time
Strip away the technical expertise that generative AI is doing quickly; the role of wealth managers is to deeply understand clients and help them make smart decisions, resulting in them optimizing their financial lives. As noted, wealth managers are client-facing and are essential for most clients as they gather information and insights and help these clients think through possibilities.
When clients understand their options and decisions are made, wealth managers implement wealth management solutions. Implementation, often the focus of wealth managers today, is insignificant compared to all it takes to help clients make smart decisions.
Assisting clients in making smart decisions is the greatest value wealth managers provide and will continue to provide for some time. At present, it is also meaningfully beyond the capabilities of generative AI and will be for a while, but not forever.
Wealth managers spend time with family business owners, for example, helping them think through how they can ensure the continuity of their company replete with toxic family members, which is not yet possible with generative AI. Meanwhile, generative AI will identify and detail trusts, other legal structures, and the financial products needed to ensure the company's continuity within the parameters set by the family.
The caveat is that the way wealth managers are thought of today will be replaced by two variations: para-advisors who will work with most of the population, and wealth advocates who will work with the ultra-wealthy. Moreover, wealth advocates will become incredibly successful and wealthy in their own right.
So, when will generative AI make wealth managers completely redundant? When a person is working through their anxieties and depression with their AI therapist because their AI boyfriend or AI girlfriend or AI pet left them, para-advisors who have already supplanted today’s wealth managers will become completely redundant. On the other hand, there will still be a need for wealth advocates.
One More Consideration
Aside from advancements in generative AI, one additional factor will significantly impact when today’s wealth managers become redundant. Who are the clients? In other words, will the clients accept professionals supported extensively by generative AI who help them in multiple ways so they can optimize their financial lives?
Say that self-driving cars will be perfected in the next few years. People can tell the car where they want to go, and they are done, for the vehicle will do all the work. On a long vacation trip, for example, all the passengers can go to sleep and be woken at a predetermined time or distance from their destination, refreshed and ready to enjoy themselves. Even with “perfected” self-driving cars, many baby boomers, fewer Gen Xers, and some elder millennials will drive themselves. They will only feel comfortable with their hands on the steering wheel.
A person's willingness to rely on generative AI will be majorly impacted by their belief and comfort in the nature of technology. Most baby boomers will not abandon a flesh-and-blood old-school professional for a professional relying on generative AI, even if the latter is objectively superior. Hence, even if they are objectively superior, para-advisors will only replace today’s wealth managers as the neo-Luddites die out.
Jerry D. Prince is the director of Integrated Academy, part of Integrated Partners, a leading financial advisor firm. Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.