12 December 2018

How AI Is Shaping The Advisory Landscape

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Across industries, artificial intelligence has become more than just a buzzword. Its premise - that machines can be programed to think like humans, to continuously learn, and to use that knowledge to solve increasingly complex problems - has already been proven and the technology is well on its way to mainstream adoption.

While many companies have been slow to adopt the technology, due in part to steep implementation costs, AI and deep learning are rapidly growing prevalent in the financial service industry. Financial advisors and RIAs, who have already been

The Rise of the Robo-Advisor 

With more than $200 billion currently under management, various industry studies predict that the amount managed by robo-advisors will continue to grow at a torrid pace. At one point, many even predicted that robo services would drastically reduce or eliminate the need for traditional advisors.

Clearly, the demise of the human financial advisor has been greatly overstated. While robo-advice has disrupted the advice industry, it has by no means replaced humans. In fact, the technology has generally served to enhance the delivery of advice. Take, for example, Vanguard’s offering, Vanguard Personal Advisor Services. Vanguard's platform is a combination of robo technology and human advice and has been widely successful in terms of drawing assets. And robo-investing pioneer Betterment now offers options where clients can interact with a human advisor as well as a platform that allows human advisors to use Betterment's platform for their own clients.

Looking to the Future 

There is much speculation about what the next frontier of AI will be in the financial advisory industry. Many believe that the next step is for AI to better facilitate advisors' relationship management. As an example, an advisor could use AI during a client meeting to call up specific client information and model the performance of potential recommendations, a task that previously would have taken a team of analysts several hours or more.

While many of today’s financial planning programs do offer these capabilities, AI's growth will only serve to expand software's analytical and predictive power. This is augmented by AI's deep learning capabilities, which will relieve advisors from having to perform much of the rote or mundane monitoring and administrative tasks that currently occupy a significant portion of their time. For example, an AI-based system could be set-up to monitor client portfolios and send a signal to the advisor when allocations fall outside of certain parameters.

While AI could conceivably eliminate some roles for human advisors or support personnel, AI's analytical capabilities will likely result in the growth of more specialized, interpretive roles as well. The adoption of Artificial Intelligence will free up advisor time for increased client-facing activities: it's unlikely that advisors will ever want to just let their systems spit out data and analysis directly to a client without some review of this output.

Automating Client Service 

It's likely that many of your clients' inquiries are questions that could be handled by an AI-driven assistant, guided by parameters that you set. This virtual assistant could perform an analysis of the client’s question and have some suggested alternatives ready for you to review and discuss.

This system could be set so that there is continual analysis of your client’s financial picture, suggesting options as the client’s situation evolves. Perhaps they have a loan that could be refinanced or there has been a recent change in the tax law that would trigger the system to automatically review the impact on all of your clients. Similarly, if there were a significant change in the management of a mutual fund used in one or more client portfolios, your AI-based assistant could trigger an alert for the advisor to determine whether that fund should be retained or replaced.

Costs of Falling Behind 

While these scenarios may seem futuristic, many of them are already being implemented by industry giants. Lagging behind in technology can pose a huge risk to advisors, especially those that are working with the next generation of tech-savvy millennial and Generation X clients. These generations are on track to be the beneficiaries of the largest intergenerational transfer of wealth in history and expect their advisors to work with them on their terms.

While AI and related technologies have not replaced human financial advisors and are unlikely to do so, AI will enhance advisor’s analytical capabilities and automate a number of mundane back-office tasks, reducing costs across the board. AI and other technologies are a tool and advisors who wish to continue to prosper will need to continuously stay on top of these technologies and strategically incorporate them into their practices.

Click here for the original article from Investopedia.

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