The use of artificial intelligence in the wealth management space might be steadily growing, but many asset managers and advisors are still reluctant to embrace the nascent technology.
That’s one of the takeaways from three recent surveys by Cerulli Associates, KPMG and fintech Orion. Despite the challenges to AI adoption, including fear of lost jobs, and lack of training and inadequate operational infrastructure, some researchers, asset managers and AI software providers predict the level of AI adoption will increase over the next year.
Drivers for the growth will be smarter use of data, the availability of more AI talent and increased familiarity with regulations.
“Once you cross the talent piece and become more familiar and comfortable with regulatory profiles given the use cases, I think you’ll see greater adoption,” J. Womack, global head of investment solutions for SEI’s Global Asset Management business, told Financial Advisor magazine.
In the Cerulli report late last month, 54% of asset managers say they currently use or plan to use AI within the next 12 months as part of their advisor segmentation strategy, which is how managers allocate resources or deploy their sales force to better distribute to advisors.
“Actionable” Data
According to the Cerulli report, 79% of asset managers have made substantial changes to their coverage strategy in the past five years. Forty-two percent of the managers cited new management as a top reason for the change in coverage, while 33% noted the distribution of a new product line such as alternatives.
Cerulli strongly suggested that AI tools are only as good as the data asset managers put in them. In effect, providing effective “personalized product recommendations and targeted marketing strategies” begins with “quality data inputs,” Cerulli said.
“Where AI may have its greatest application when determining advisor segmentation and coverage strategy is through the identification of actionable data amid huge amounts of information,” Andrew Blake, associate director at Cerulli, said in a statement. “The overwhelming amount of data asset managers have at their disposal is not very helpful unless it can be properly analyzed and implemented into sales processes. Identifying growing advisor practices and efficiently targeting them is a work in progress for most asset managers.”
Firms at the forefront of AI use and technology in general are spending more than they ever have on tech tools, according to Cerulli. “We are only seeing the beginning of improvements to process efficiency and client experiences from early adopters of AI, but they have been meaningful,” Blake said.
Blake said he’s encouraged by the level of AI adoption as revealed in the survey. “It’s higher than I expected; it’s a wake-up call to those not thinking about it,” Blake said, adding that “I anticipate that [54%] jumping by next year.”
“Proceeding Cautiously”
In its survey late last month, KPMG noted that despite the AI hype, asset managers are “proceeding cautiously.” Forty percent of the managers say they’re just in the conceptual phase of using the technology; 25% are developing capabilities, and nearly a third haven't started using the technology yet, the survey found. Furthermore, less than 5% said their organization has a clear strategy.
Sixty percent of asset managers cite concerns about data integrity risks as a prime barrier to AI adoption, and 53% cite lack of awareness and training.
Agnel Kagoo, KPMG U.S. consulting industry leader for capital markets, said the adoption rate reported in the survey might seem low, but he noted that 60% of the asset managers are at least interacting with the technology, and that bodes well for an uptick in use.
“To get [AI implementation] right you need to have your data right, to get your data right you need to have your infrastructure right,” Kagoo said. “And then you need to have the talent to leverage the technology.”
He added, “Next year same time, if there’s one-third of the companies still saying they’re not even initiated, that’s disaster for those companies. Either you adopt it or …become extinct.”
Like asset managers, advisors also exhibit diverse use and expectations around AI. Orion’s recent quarterly financial advisor pulse survey found that while one-third of the 206 advisors surveyed use AI and almost half will be leveraging the technology as part of the strategic direction of their firm in the next three years, 36% are fearful of implementing AI.
“We expect AI adoption to rise significantly over the next year,” Natalie Wolfsen, CEO of Orion, said in an email. “We’re seeing strong momentum in both interest and practical application.”
There’s another aspect of successful AI adoption that asset managers forsake at their professional peril: regulatory compliance. Compliance veteran Mitch Avnet, founder and CEO of Compliance Risk Concepts, of New York, said asset managers and advisors must be careful, thoughtful and transparent in incorporating AI into their organization.
“You start diving into these things without appropriate infrastructure,” warned Avnet, “then that leads to operational issues that ultimately leads to regulatory issues.”