As the artificial intelligence (A.I.) revolution penetrates deeper into the economy, one group of professionals must quickly figure out what the algorithms have in store for them and their clients – financial advisors.
According to a May study by Morgan Stanley, almost three-quarters of investors (74%) expect A.I. will help financial advisors better serve their clients. A clear majority (63%) of those surveyed expressed interest in hiring financial advisors that leverage A.I. technology.
Recent months have seen a string of headlines touting A.I.’s superhuman financial chops. A fictional fund created by Finder with ChatGPT has beaten returns of all of the U.K.’s ten most popular funds since its creation in March. Reuters journalists have also shown how the tech can be used to identify the most affordable places to live in the U.S. and which college degrees deliver the most value for their tuition costs.
So are robots primed to leave advisors out of a job? Not so fast. Despite all the enthusiasm, the overwhelming majority of investors surveyed by Morgan Stanley (82%) believe A.I. will never replace human guidance on finance.
This article will consider the pros and cons of A.I. in the financial consulting industry and hear from several advisors themselves on how they see the technology impacting their role.
From the epic arrival of ChatGPT to the recent explosion in Nvidia stock price, it seems everything A.I. touches is red hot. The sky seems to be the limit for the technology’s use case, making it hard to quantify its potential impact.
Forecasts foreshadow change on an enormous scale. Accounting firm PWC predicts A.I. will contribute nearly $16 trillion to the global economy by the decade’s end. For context, that is equivalent to adding the equivalent of another whole Chinese economy to our world.
Not only is A.I. itself expected to be one of the biggest drivers of economic growth over the coming decades, the financial services industry is also tipped to surge.
According to the U.S. Bureau of Labor Statistics, there were over 330,000 financial advisors in the U.S. in 2021. The bureau predicts employment of personal financial advisors is expected to increase by 15% between 2021 to 2031, a growth rate the government classifies as “much faster than average” – exactly triple the rate of the average growth rate for all occupations.
Merged together, A.I. and financial advising could be an explosive combination.
“A.I. can help clients quickly get up to speed on investing basics – that’s especially helpful for my hourly practice!” claims Kevin Estes, Financial Planner and Founder of Scaled Finance. “The less time I spend explaining fundamental concepts, the more I can dedicate to higher value add activities for clients,” he says.
“A.I. can also help ensure advisors don’t gloss over basics,” he adds. “The curse of expertise is sometimes forgetting others do not know what we do. Advisors who feel they may be replaced by A.I. have a scarcity mindset. Shifting to a growth mindset can unlock real value.”
An algorithm’s raw computing power is at the core of this value proposition. With machine learning, it can keep improving with access to ever greater quantities of data. That speed can make the difference in split-second trade moves in financial markets. But does speed outweigh the knowledge ascertained by advisors who have earned advanced credentials like the Certified Financial Planner or Chartered Financial Analyst designations?
“A machine learning model can provide valuable insights and augment human decision-making due to the mass of data that can be analyzed and the rapidity at which market conditions can change,” says Jorey Bernstein, CEO of Bernstein Investment Consultants.
However, leaning too much into wealthtech tools can bring other risks.
“Relying on A.I. systems for investment advice introduces new cybersecurity vulnerabilities,” says Bernstein. “If malicious actors gain unauthorized access or manipulate the A.I. algorithms, they could exploit vulnerabilities for personal gain or disrupt financial markets.”
Humans may not move as fast as A.I., but they are more relatable. Sometimes, that is just what people need to make sense of their finances and could result in more people seeking to find financial advisors who they can trust.
“In our business, clients crave human connection and the ability to connect to their trusted advisor,” says David Berns, Financial Planner at Truadvice Wealth Management. “We are surrounded by technology everywhere we go and when it comes to their personal finances, we find our clients enjoy that face-to-face meeting and touch,” he adds. “Firms are using A.I. for robo-advising but that tech only goes so far and sometimes fails to understand the client on an personal level.”
“Clients hire an advisor for a human touch- devoid of the phone trees, where they call and hear a familiar voice that knows them and take care of them with simplicity and ease,” says Paul Doak, CFP and Owner of I.D. Financial.
Like most other knowledge-based industries, A.I. will transform financial services over the coming years. Harnessed correctly, A.I. tech presents an irreplicable opportunity for industry players.
Yet, while algorithms excel at crunching numbers at warp speed, clients may not fire their financial advisors anytime soon. This may be because many financial decisions, at heart, are emotional and are inextricably linked to our personal values.
Much of a quality advisor’s work is about listening out for their client’s concerns. Only by practicing genuine empathy can they provide considered pathways for their client to map out their own financial future based on what feels right for their life.
A.I. can be a powerful tool for these advisors owing to its superhuman ability to analyze vast amounts of data. In this emergent new era, the winners will be those advisors who can strike a harmonious balance between the benefits of technology without losing the human touch, ultimately delivering optimal guidance and fostering stronger client relationships.
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