Anthony Villis at First Wealth looks at how AI is changing the way financial advisers demonstrate value, manage risk and develop future talent.
We’ve had a couple of years of breathless discussion about using AI in wealth management and financial planning, with both champions and detractors. Now, we’re at a point where there’s a shift away from an immediate reaction and towards weighing up the business value of embedding the technology into our operations.
That said, it would be wrong to assume that a more rational approach has not led to new challenges. As more advisors champion their use of AI, four issues are emerging that need to be addressed:
- The commoditisation of the portfolio
- Appetite for risk with AI
- Impact on talent
- The rise of an anti-AI premium
What do we do when the portfolio becomes commoditised?
The first is answering the question of how we prove value when our core product, the portfolio, has become commoditised. It’s happened because the foundation on which we build the portfolio, data, is now easier to access than ever before, thanks to the profession’s adoption of AI.
The technology is not a differentiator; we’re all automating the same parts of the process. That’s fantastic from an optimisation perspective, but not so much from defining a unique selling point to clients.
It’s coming at a point when both clients and advisors are rethinking what makes a good wealth management relationship. Portfolio performance used to be the number one focus; that’s now adjusting, as people start to see that there is more to a profitable partnership than knowing which stocks to invest in.
The result is a disruption of established norms as firms try to work out what they stand for and why clients should work with them.
No one should have a high appetite for AI risks
The increased use of AI also raises questions about how firms are managing the risks of AI hallucinations. What guardrails have they established to catch AI-generated nonsense not just ending up in client communications, but dictating decision-making?
This isn’t unfounded scaremongering, or a theoretical possibility. More and more professional service firms are being exposed for allowing AI hallucinations to seep into their public-facing work, from big four consultancies having to retract reports (ironically on AI) for citing non-existent references, to law firms being admonished by judges for filing made-up precedents. In some cases, this will have both regulatory and reputational implications
There’s no blaming the tools, either. The FCA has stated that it views AI, as with all technology, as neutral, with the focus on outcomes. If a planner were to provide AI-generated advice that was contrary to the Consumer Duty, the planner is liable.
Where will the next generation of advisors come from?
There is another type of risk that comes with unfettered AI use: the threat to future talent pipelines. We’ve all built our careers through a combination of qualifications and, crucially, on-the-job training. The latter came from learning the technical details of the work bit by bit. It wasn’t fun, it wasn’t glamorous, but it gave us a foundation that is at the heart of the decisions we make and the advice we give to clients today.
That’s exactly the sort of work that is first to be automated. If we continue down this path, then there will be less work for entry-level employees to undertake. Fast forward a few years, and everyone will start to wonder where all mid-career planners and advisors have gone.
There’s a case to be made that we’ve seen this sort of trend before. Whenever a recession hits, hiring slows, and then a couple of years later there’s some handwringing about a dearth of talent at a certain level. What’s different here is that those instances of economic downturn were temporary. AI isn’t, so we need to find new ways to bring on talent and upskill the next generation of planners alongside the judicious automation of specific tasks.
Can you offer AI-free services with AI operations?
That idea that AI is here to stay leads us to the final trend, and the likelihood that in the future we’ll see a market for two seemingly contradictory different types of services.
As already noted, AI is removing barriers to accessing data, and through that will come general financial advice. Those firms that incorporate AI-augmented services will be able to support a wider pool of customers than previously possible. It’s the democratisation of wealth management, and at a time when financial illiteracy is rife, that can only be a positive.
At the same time, we’re going to see demands for the opposite: services completely free of AI. There will be a segment of clients that do not want any form of AI touching their data or the advice they receive from planners and managers, and they’ll be willing to pay for it.
We’re seeing this desire for a more direct human connection in other industries: just look at the growth of farmers markets over the last couple of decades. Supermarkets are a fact of life, but there is an audience for retail experiences where customers can build relationships directly with people producing and making better quality food. It’s certainly more expensive to shop in this way, but people are prepared to pay for it.
Delivering both a premium tier and AI-augmented advice at scale could be highly lucrative for firms, but it does require the governance and infrastructure to keep the two client bases separate. It also needs knowledgeable advisors capable of building and developing relationships.
How do we manage it all? With our Human Dividend
It’s quite the situation we’ve got. On the one hand, AI is certainly creating opportunities; on the other, there’s a real risk that unrestrained use could cause significant damage.
Fortunately, there is a solution, and it’s one we all have access to: the value we have as people. When we provide advice, we shouldn’t be repeating what some data analysis has told us, but using our emotional intelligence to understand what really matters to our clients. That’s helping them to identify their goals, incorporate their responsibilities and stick to financial plans that allow them to meet and achieve all of those objectives.
We’re a profession that is about people, and our clients need us to not only help manage their wealth, but to use our emotional intelligence to read between the lines. To know what to say, when to say it, and to hear what’s not being said as much as what is.
This is the Human Dividend, and it is critical to how we as a profession use AI. It is the differentiator when everyone uses the same technology; it is both the guardrail and the last line of defence to mitigate the risk of AI hallucinations; it is how we can offer both the AI-premium and the augmented advisor at scale. To preserve it, we’ve got to protect our talent pipelines.
It doesn’t matter how much we automate, we’ve got to keep the human element in our profession. When clients can access general advice and broad insights into portfolio performance without us, our value has to take a different form. We’ve got to build and nurture relationships that offer value far beyond what an AI model can generate, supporting clients to make the right decisions for their future and that of their families.
