Written by Carolina Minio Paluello, CEO of Arabesque AI
Is customisation through combining funds really customisation at all? Before AI, not only was this an uncomfortable question for advisers and wealth managers, it was academic too.
Because there was no other option. But now the power of true customisation is available. And not just to the biggest asset managers, but to advisers of any size.
AI now gives advisers and wealth managers the power to generate customised strategies down to a single stock, at a click of a button. And the timing couldn’t be better, because the demand for customised strategies is soaring. Four out of five managers now see customisation as a key growth driver. But this is nothing compared the demographic sea change that’s coming.
According to Morgan Stanley, 90% of Millennials are interested in pursuing sustainable and values-aligned investments. Recent research on the next generation of investors also found that 64% of millennials and 51% of investors aged 35-54 are willing to pay more for personalised investing products. And these Millennials, according to MSCI, are set to inherit $30 trillion over the next few decades. In a market where customisation will soon be king, portfolios composed of off-the-shelf funds will no longer cut it.
To date, meeting the demand for hyper-customisation has proven to be a challenging task for even the biggest asset managers. Creating and managing personalised portfolios for small mandates is not cost effective, with the resource required for single-stock personalisation far outweighing potential fees. And the data required to align portfolios to individual impact or thematic preferences makes customisation at scale economically impossible.
But AI is changing this, making it possible for financial advisors and wealth managers to generate customised strategies in minutes, and at a fraction of the traditional cost. And AI combined with cloud computing and big data now provides the computational power to easily integrate ESG data into portfolios, equipping advisers of any size with the tools to meet all client preferences and values – turning a complex challenge into a transformative growth opportunity. Advisors and wealth managers can outsource less, and do more themselves.
The game-changing potential of AI will also extend to compliance. Incoming ESG regulations affecting larger asset managers and institutions offers a good example of this, prompting a rush to reclassify funds. This is despite most companies not providing the information these regulations deems mandatory. But navigating this data dearth and reporting burden is a problem the computational power of AI can easily solve, constructing portfolios down to single-stock levels that are aligned with regulatory requirements such as SFDR’s Article 8 and Article 9 classifications.
None of this is theory. Arabesque AI has launched Aether, a platform powered by AI and impact data that empowers advisers to deliver alpha and hyper-customisation at scale and generate portfolios in minutes. This puts advisers firmly in the driving seat, equipping them to offer personalised strategies at the cost of passive.
Finance, which hasn’t been meaningfully transformed by technology in a generation, is on the brink of its next big change. Until now, the application of AI in finance has long been fixated on performance. And for good reason, because AI will improve decision making, enhancing portfolio management, and much more. But this won’t be the only benefit.
AI’s real power lies in removing the barriers that have long restricted IFAs and others: cost and time. And the biggest winners will not be those who focus solely on optimising performance; it will be those who realise its potential to serve a huge new market opportunity.