Accelerating AI: Why advisers and automation need to collide

The doomsday prediction that fully digital advice platforms would cause the demise of human advisers hasn’t panned out, but there is one critical technology where the collaboration between humans and robots could be table stakes for the future of financial advice: artificial intelligence.  

There’s a misconception in the industry that the advocates of artificial intelligence, or AI, envision a future in which financial advisers are replaced by emergent technologies, but this is not the case. The tech challenge still facing advisers in 2021 is not how to outwit the machines, it’s how to cooperate with them, said Benjamin Brodie, chief technology officer at registered investment adviser GenTrust.  

“Simply put, advisers are not going to be replaced by machines, they are going to be replaced by other advisers who recognize the value and the necessity of incorporating AI into their businesses,” Brodie said.  

AI, which refers to the simulation of human intelligence by machines programmed to think and act like humans, is expected to create $2.9 trillion of business value and 6.2 billion hours of work productivity in 2021, according to research by Gartner Inc. Moreover, wealth management firms that have increased their use of AI are reaping the benefits — with two times the success rates and three times the returns from AI investments, according to Accenture research.  

Despite the benefits, advisers historically have been slow to adopt AI technologies across different segments of their business.  

In fact, 84% of wealth management C-suite executives believe they must employ AI to achieve their growth objectives, yet 76% acknowledge they struggle to scale AI across the business in part because of uncertainties around what client experiences will look like in a post-pandemic world, according to Accenture.  

Advisory firms face several other roadblocks to deploying AI across the enterprise, including an inability to establish a supportive organizational structure, the lack of employee acceptance and the absence of foundational data capabilities. 

DOMINATING DATA

The challenges facing the advice industry when it comes to implementing AI are less about obtaining AI technology and more about firms not having the kind of data connectivity needed for AI to operate efficiently.  

Advisers do not have patience to deal with the vast number of AI-based point solutions available, let alone figure out interconnectedness between data, said Hamesh Chawla, chief technology officer of Edelman Financial Engines, the nation’s largest independent RIA with about $229 billion in assets under management.  

“There’s a lot of opportunity there to make software and integrations a lot smarter if we leverage AI.” — Aaron Klein, CEO, Riskalyze

What advisers want to see is a continued innovation toward a connected ecosystem, Chawla said. “They want to see that if they are working in a CRM today, the same information is flowing into another connective tissue.” 

The endgame is to get technology levers working in unison and articulate their impact through a scoring system, basis points, or pure dollars and cents, said Jack Sharry, executive vice president and chief marketing officer at LifeYield. This opens the door for advisers to easily recommend “next best actions” for their clients and show exactly how much value those actions will create, he said.  

Just as Amazon suggests purchases to customers based on their search history, next best action enables advisers to identify and prioritize actions based on clients’ needs and behaviors.  

Morgan Stanley, for one, already has a next best action tool that lives on its WealthDesk platform. The tool factors in the adviser’s investment strategy and the firm’s internal research to suggest a prioritized list of activities tailored to each client’s unique needs and preferences. 

“It’s all about data,” Chawla said. “Our philosophy as a firm is to augment the planner experience and client experience, rather than impose technology and AI solutions on our planners. 

“We built a connected technology ecosystem, and now the data is smoothly flowing through the system, allowing us to mine, learn and leverage it to produce intelligent insights for our planners and ultimately for our clients,” he said.  

The platform connecting Edelman Financial Engines products and services is the cloud-based Amazon Web Services. Chawla said cloud technology makes RIAs’ use of these connected frameworks and models much easier than it was 10 years ago.  

Differentiating a firm’s client experience is a huge factor, too, since the competitive landscape among RIAs has not gotten any easier, said Adam Boyer, senior vice president of digital investment advice at digital investment platform Emotomy. 

Connected AI tools enable advisers to provide a luxurious client experience as the industry competes with the higher client expectations that have been set by companies like Apple, Peloton or Netflix, Boyer said.  

Tech providers are well positioned to come up with innovative solutions for these adviser needs and pain points. For example, wealthtech Riskalyze is leveraging AI-based integrations and the personalization trend to capture adviser attention. 

Riskalyze co-founder and CEO Aaron Klein is looking into ways AI could make the Riskalyze trading dashboard a solution for advisers facing “decision fatigue,” he said. “There’s a lot of opportunity there to make software and integrations a lot smarter if we leverage AI in the right way.” 

Klein is also interested in the idea of AI helping create more intelligent defaults for advisers.

“Advisers need to be making decisions so that they are exercising their fiduciary duty,” he said. “I don’t think we see the AI necessarily making the decision for the adviser, as much as prompting the adviser with the default decision that is most likely.” 

THE STRUGGLE TO SCALE

The world generated roughly 1.7 megabytes of data every second in 2020, according to Accenture, and most organizations are struggling to manage the sheer volume of information and figure out how to use it without increasing their risks.

AI decisions that employ this data have a real bearing on people’s lives, and placing decision-making capability in the hands of machines raises questions around ethics, trust, legality and responsibility that have made advisers wary about increasing their use of AI.

“This has never been truer than today, in  a climate where fairness and justice are front and center of most of our personal lives,” according to the Accenture report. Relying on AI can expose businesses to additional risks, including reputational, employment compliance, data privacy, and health and safety issues.  

Employee adoption is also a struggle even though the majority of advisers (71%) see AI transforming the client-adviser relationship in the next year, and 100% expect that to happen within three years, according to Accenture.  

There’s a false impression that integrating AI technologies is taken care of by hiring a technology team to handle it, but that’s where things fail and fall apart, said Cory Haberkorn, senior manager of global go to market for wealth and asset management at Salesforce.  

Today, advisers have access to new data points such as clients’ online presence and behavior, life stages, events and geolocation, signaling that the industry is undergoing a strategic digital transformation that needs to be recognized by the business overall, Haberkorn said.  

“I’ve seen it many times that if we view this as a technology project and a technology problem, it will be a problem forever because that will never fix it,” Haberkorn said. “It will just waste a bunch of money and time, and we’re not getting anything out of it.” 

To achieve more employee adoption, AI use cases need to be driven by the firm’s business strategy, not the technology. Moreover, to successfully scale AI requires an operating model that includes defined processes and owners, ways to measure value, appropriate levels of funding, and established executive and organizational support.

Advisory firms should bring marketing and IT together to help solve a problem — and it needs to be driven by return on investment, Haberkorn said. Advisers need to treat AI as an ongoing and iterative process as the data landscape and underlying technologies evolve.  

AI is also enabling advisers to provide a level of customized, in-depth service to all clients that would otherwise only be available to the select few who can afford a dedicated team or family office, said GenTrust’s Brodie. The better that human advisers and AI work together, the more sustainable the result.  

“If a firm is able to wield the power of automation effectively, it is able to deliver complexity and depth of analysis previously only afforded to the wealthiest of clients,” he said.

[More: How one RIA uses AI in 2021]

Related Topics: Artificial Intelligence