As artificial intelligence (and its ability to disrupt industries) becomes better understood, financial advisors are likely asking: What else can it do and how should our firms be preparing for its impact? Advisors want to use these tools, but aren’t sure how to roll them out or control their use to benefit themselves and clients.
2023 saw exciting advances in these applications, and even more sophisticated uses are likely to emerge in 2024 as people and institutions access AI through cloud services and machine learning platforms.
How, exactly, will AI impact financial services—and advisors in particular—in 2024? Here are some key trends to watch:
Fraud Prevention
Banks and financial institutions are already using AI surveillance to detect fraudulent transactions in real time by recognizing patterns. According to a report issued by the Federal Trade Commission, U.S. consumers lost $300 million as a result of fraud last year. That’s up from $131 million in 2021 and $86 million in 2020. The median loss for victims doubled from 2021 to 2022.
In 2024, enhanced AI algorithms will offer even more robust protection against emerging threats such as identity theft and online scams. Going a step further, artificial intelligence will have a significant impact on regulatory technology, aiding financial institutions in maintaining compliance with continuously evolving rules.
The technology has already demonstrated its value by analyzing both historical and real-time transactions and performing complex pattern-matching in search of criminal activity. Standards change as rapidly as technology, and these new tools will help companies and professionals address these challenges. AI can swiftly analyze regulatory changes and assess their implications for internal systems and processes, guiding firms on how best to react.
AI will also help advisors stay ahead of emerging threats. By continuously monitoring fraud patterns, transaction anomalies, and cyber threats, AI systems will alert advisors to signs of trouble so they can take preventive action. Rather than replacing human judgment, AI will augment advisors’ abilities to assess risk, leading to better protection and peace of mind for clients.
Market Risk Assessment
AI tools will enable financial advisors to evaluate market risk as well, and with far greater accuracy and customization than they could before. By using massive datasets across the financial system, AI algorithms can see patterns and correlations that might escape human detection. Advisors will rely on AI-generated risk models to gain robust insight into market volatility, economic conditions, client portfolios, and individual investors’ behaviors. With this comprehensive view, advisors can create truly personalized strategies to optimize returns at a client's acceptable level of risk.
Financial Research
Meanwhile, artificial intelligence can also transform financial research on investments by automating data collection, processing and modeling. With access to vast amounts of structured and unstructured data, AI algorithms will be able to rapidly analyze financial statements, evaluate economic indicators, and identify patterns and trends. This will allow for more accurate forecasts, simulations and recommendations—all generated in a fraction of the time currently required by human analysts. Rather than performing routine research tasks, analysts will be freed to interpret AI findings, draw strategic conclusions and advise clients, and their conclusions will be supported by the findings of the technology. That will help them achieve unprecedented efficiency and insights, making financial advisors and investors more agile in 2024 and beyond.
Hyper-Personalization For Clients
Since the technology will be armed with vast amounts of customer data, that will allow financial services professionals to come up with ultra-personalized targeting and product recommendations. These individualized offers and experiences are pivotal in maintaining customer engagement.
Humans Rule
Despite these rapid innovations in technology, the human touch remains important in financial services. Even in the presence of chatbots and robo-advisors, genuine financial advisors will always be indispensable, particularly for wealthy individuals seeking highly personalized services. The most successful firms will be those capable of striking the right balance in using cutting-edge technology and harnessing human wisdom.
Financial institutions that embrace AI technology early will have a distinct competitive advantage in 2024 and in the years to follow. But the companies that thrive will be those that deploy AI responsibly and strategically, always putting client benefits, trust and satisfaction first. With the proper alignment of people and technology, AI promises to redefine finance.
Nick Graham is the chief technology officer at Cambridge Investment Research Inc.