The Dow Jones Industrial
Average shed more than 1,300 points earlier this month in the most
dramatic drop since February.
If you are a client of Morgan Stanley Wealth
Management, you may have received a message from your financial advisor.
The purpose of the message would be
to tell you exactly what happened in the market and what the firm's investment
professionals are saying about it. It would also tell you your portfolio's
current probability of success in light of recent events.
The email would come from your
financial advisor. But behind the scenes, they are getting help from a source
you might not expect: artificial intelligence.
Morgan Stanley is one firm
experimenting with how these new technologies can be applied to better manage
clients' money.
Artificial intelligence refers to
the ability for computer science to be applied in ways that replace human
intelligence. Financial firms — ranging from big Wall Street names like Morgan
Stanley to robo-advisors and start-ups — are all taking a look at how tools
such as algorithms, data mining and natural-language processing can help you
become wealthier.
Morgan Stanley formally launched its
initiative — called Next Best Action — to its more than 15,000 financial
advisors earlier this year. Including the firm's service employees, more than
20,000 have access to the tools.
The technology works by evaluating
communications with clients by emails, texts and other notes. It then applies
machine learning to evaluate other ideas that can be suggested to the client.
The tool could prompt your advisor
to send a message when a stock you have a significant position in has been
downgraded by the firm. Or if you live in the path of a coming storm — as with
hurricanes Florence and Michael recently — it can send you a note with a list
of helpful resources, information on your insurance rights and tips for
protecting your pets.
"The machine serves up those
ideas to the financial advisor, and then they decide what makes sense based on
their practice and the needs of the clients," said Jeff McMillan, chief
analytics and data officer at Morgan Stanley Wealth Management.
Other applications
Natural-language technology is one
way that artificial intelligence is being put to the test to handle human
requests.
This started hitting the mainstream
a few years ago with Apple's Siri, which could answer task-based requests, such
as "Play Taylor Swift" or "What is the weather in New
York?" according Ram Menon, founder and CEO of Silicon Valley start-up
Avaamo, which is providing conversational artificial intelligence to financial
services firms.
Now the technology is advancing to
more complex questions to replace human interaction.
For wealth management clients, that
means the possibility of getting a more immediate response via mobile apps,
websites or voice for routine requests, such as to rebalance your portfolio or
sell a stock.
"While there is a lot of talk
about AI is going to change the world, and it is, a lot of the changes that are
happening in the wealth management, retirement-planning market is tangible, is
practical and is just making the whole velocity of interactions more
efficient," Menon said.
Some companies are also
experimenting with machine learning, where data is used to make predictions for
the client.
Robo-advisor Wealthfront has
introduced a feature named Path, which uses third-party data and
machine-learning techniques to provide answers on everything from when you can
retire, how much home you can afford and which neighborhoods you can afford to
live in.
"If you tell [Path] that you're
going to buy that $1.3 million condo in the East Village in five years, it can
actually tell you, 'That's great. If you want to do that, it looks like you
might have to retire a couple of years later or you could just save more,"
said Kate Wauck, vice president of communications at Wealthfront. "It's
not siloed advice. This is the power of automation."
Human guidance
At Morgan Stanley the prompts
advisors can send are aimed at helping to augment — not replace — their work.
"The most powerful driver of
client satisfaction are in-person meetings and phone calls with our
clients," McMillan said.
Those in-person conversations often
involve discussing everything from investment options to more complex
situations, such as handling parents who have early stage dementia or a child
who has been diagnosed with a severe disability.
The technology the firm is using
solves two problems, McMillan said. First, it frees up more time for financial
advisors to have more of those in-depth conversations. Second, it allows them to
reach more people faster. So when the Dow has a precipitous drop, the machine
allows advisors to message hundreds of clients at once — more than they could
possibly reach individually.
Other companies cite examples where
clients are showing a preference for automated systems over human interaction.
When Avaamo worked with one
undisclosed financial services firm in Asia to deploy a virtual assistant to
provide life insurance quotes, the clients actually preferred that contact,
Menon said.
"The feedback was, 'Hey, we
like the virtual assistant because it doesn't lie. It's not trying to sell me
something. It's very factual,'" Menon said.
Likewise, robo-advisor Wealthfront
is also betting that its clients — whose average age is 32 — prefer nonhuman
contact.
"We don't call someone to
really do anything anymore," Wauck said. "That's just an ingrained
consumer preference."
Potential growth
Whether artificial intelligence will
actually replace human financial advice — and how fast it does — depends on who
you ask.
"I think the technology is
already there to replace the human," Menon said. "It's a question of
adoption, as well as the seeming reluctance of the industry to let go."
Betterment, another robo-advisor, is
using artificial intelligence in a limited capacity to back-office tasks such
as check processing.
The company does not use the
technology to generate financial advice or manage portfolios, said Dan Egan,
director of behavioral finance and investing at Betterment.
"Generally speaking, machine
intelligence is kind of like an autistic savant, in that it will be very good
at a very narrow, well-defined set of problems," Egan said. "It is
not good at very open ended vague things with lots of different branches you
can proceed down."
Financial advisor Ric Edelman,
executive chairman of Edelman Financial Services, is also not sure the
technology is there yet.
"When it comes to personality
issues and the soft side of money, the algorithms, the AI, is nowhere near
ready yet to be able to help you deal with the complexities and nuances of
personal finance decisions," Edelman said.
But that could change in 10, 20 or
30 years, Edelman said, or whenever we reach the point when human and machine
intelligence are indistinguishable.
"It's
widely considered that that is targeted for somewhere in the 2030s,"
Edelman said. "In other words, the financial-planning profession remains a
really good career for a while to come."
Click
here for the original article.