He said any task having to do with data entry and paperwork is likely to be automated.
Though it will significantly disrupt the insurance and banking industries, AI is less likely to have an immediate impact on back-office employees in wealth management, said Faggella, as many of the most easily automated functions have already been outsourced to third parties or technology.
“The obnoxiously boring paperwork processes are going away; those roles will be gobbled up,” he said. “We no longer need people actively, manually pecking into systems. Some of these people can be used for higher level tasks.”
But when more back-office functions at financial advisory firms are replaced with AI and other technologies, there are going to be permanent job losses, he said, as most back office personnel lack the characteristics to become great client-facing advisors. “If you work in a back office, you might not be enough of a glad-handing person to be successful as an advisor and maintain a book of business. There’s a personality factor there.”
The customer service applications of AI, things like chat bots, get a lot of press but they aren’t receiving a lot of research and development funding right now, he said. That’s because firms are less likely to discuss the compliance and security enhancements they are making in the public eye, but will gladly talk about the relatively small amount of money spent to develop a client chat program.
“We call it the lens of incentive—a company will let people know about its technology initiatives when it believes it will make the company look better in front of who matters, like journalists,” said Faggella. “Is Wells Fargo ever going to say that they just spent $10 million with Darktrace, an AI cybersecurity vendor, to protect the data of their North American customers? Probably not. It creates an additional security risk, and it scares people. So financial services companies tend to talk most about how the customer service experience is going to be transformed.”
He downplayed the influence and value of most innovations in marketing technology, noting that many of the early client- and advisor-facing artificial intelligence applications are now defunct, suffering from a lack of financial support and low rates of adoption.
“Tiddlywinks money is going into marketing applications in financial services,” he said. “Most of these apps are bloviated garbage; there’s really not much going on there in terms of investment.”
There are two major obstacles to adopting AI into anything customer-facing, said Faggella. The first is that the immediate money that financial institutions are willing to spend on next-generation technology tends to focus on risk-related issues. The second is that there are only so many software developers in the world with the skill set to develop the customer-facing applications of AI, and they tend to be focused in Silicon Valley.
A tertiary reason that AI is unlikely to find a place in advisors’ front-office operations is the risk of losing clients.
“If I have an internal discovery application at my firm that helps employees retrieve files faster, nobody will quit if it breaks 20% of the time, but a chat bot that breaks 5% of the time—nobody is going to use it,” he said.