Mind the AI governance and due diligence gap – NextWealth’s latest report highlights learnings for adviser firms

The latest report in NextWealth’s Adviser Tech Stack series – Clearing the path for AI in advice – ranks the material barriers that firms must address in order to move from pilots to scale when it comes to AI, with internal governance frameworks coming high up that list.

The findings show that fewer than 5% of financial advisers have full AI policy, guidelines, and sign-off.

Conducted amongst 200 advice professionals, the research shows the real world impact of compliance expectations and patchy due diligence – alongside the perennial issue of sub-standard systems integration. Its author argues that clearing these blockers – putting governance and policies in place, standardising core processes, and fixing data plumbing and APIs – should be providers’ focus if today’s efficiency wins are to be converted into measurable outcomes and, over time, scalable capacity.

Compliance and regulation are already the standout barriers to AI adoption, alongside a lack of systems integration, and the findings show that 79% of all firms surveyed believe it poses a barrier to adoption, 19% of which view it as a very significant barrier. That rises to 23% for sole traders. 

The report highlights that the concern advisers express about the need for rigorous due diligence isn’t abstract, it’s practical. A lack of a structured due diligence framework is cited by 77% of financial advisers as a barrier to AI adoption in some form. Report author and Associate Research Director at NextWealth Chanelle Paynter says: “Firms want proof, not promises. They want plain English explanations of how these models work, where data sits, how it’s tested, and how client detriment is avoided. And they worry that they may not yet know what the right questions to ask are. They also worry whether providers can provide straight, audit-ready answers to those questions once known.”

Firms have proven that they are able to trial, learn and adopt low-risk, repeatable use cases that deliver visible gains in days, not months. However, Paynter says few firms are tackling the bigger changes that could reimagine the advice process: “Our findings point to the reason why. Many of the foundations simply aren’t in place. Firms have rightly chased the quick wins, trialing meeting note-takers and similar tools, taking a tactical approach to adoption. Promises that AI will ultimately help to ‘close the advice gap’ by doubling capacity and cutting the cost-to-serve, will be nigh on impossible to realise without core building blocks such as clear governance and policies, reliable data connectivity and integrations, consistent processes and a simple strategy.

“Providers have a clear role here, and it is in their own interests to act. In a market where more than half of firms are open to changing AI provider within the next year, practical support in the form of governance packs, real integrations, evidence of value will be key in keeping business.”

Paynter says suitability assessment and reporting provide the standout opportunity, but progress is slow for two reasons: many tools still fall short on accuracy and logic, meanwhile AI amplifies the process you already have. If templates and checks are inconsistent, AI will scale the inconsistency, so firms are pausing until these issues have been addressed.

Return on investment questions are also surfacing, the findings show. “Firms are weighing license costs against time saved, especially where AI sits alongside existing templated processes and still relies on manual data entry. AI has proven its efficiency gains, but its long-term impact will depend on solving integration and data quality issues,” says Paynter.

Where AI has been adopted the benefits being felt are well documented – increased speed and operational efficiency, which are cited as key gains by 84% of advice professionals who took part in NextWealth’s research. However, less well documented is the fact that many firms don’t yet have a long-term plan for reinvesting the time AI frees up.

“It is not just AI governance and due diligence gaps we need to be mindful of, it seems there is a post-AI adoption strategy gap emerging too,” concludes Paynter.

For further information, visit the NextWealth report webpage.