Advisors must evolve to survive in the AI era

The phrase “machines will never replace a human financial advisor” is repeated so often by the wealth management industry, it can’t even be called a cliché anymore.   

As a recent surge in artificial intelligence developments captures mainstream interest and capital investments, it’s starting to sound more like a self-love mantra repeated into the bathroom mirror. “I am smart. I am strong. And my clients will always need me.”

Will they though? I’m not so sure. Anecdotally, nearly everyone I know self-manages their investments or turns over the product picking to a robo-advisor. Chalk it up to residual mistrust of the financial services industry among people who entered the workforce during the global financial crisis, and a particularly effective South Park episode.

Data show that people’s relationship with technology is changing. A 2021 peer-reviewed study found that forming emotional bonds is possible between a human and a computer for the sake of providing mental health therapy.

“Although bonds are often presumed to be the exclusive domain of human therapeutic relationships, our findings challenge the notion that digital therapeutics are incapable of establishing a therapeutic bond with users,” the researchers concluded.

If a computer can help with something as complicated and personal as mental health, do you really think it can’t give helpful answers about saving for retirement? OpenAI’s conversational AI ChatGPT has already passed medical, legal and business school exams; passing the CFP exam is not outside the realm of possibility.

Financial advisors shouldn’t take this personally. The robos are coming for tech reporters as well; AI is already being used to write articles at technology publication CNET and will soon be writing listicles for BuzzFeed.

So much of financial services is already automated. AI has been handling fraud detection at banks for years. Online trading companies like ETrade made stockbrokers outdated back in the late 1990s, and it's only gotten easier to invest with the rise of mobile apps like Robinhood. Robo-advisors have not taken over, but they have helped push the industry further away from investment management and product sales toward planning and holistic advice.

While ChatGPT is unable to recommend specific investments or build a market-beating ETF, other AI engines are managing investments. The AI Powered Equity ETF (AIEQ), a $102 million vehicle powered by IBM’s Watson, has returned about 10% in 2023 compared with 4.7% for the S&P 500 Total Return Index, according to Bloomberg.

Right now, ChatGPT is limited by a lack of data and some rules put in place by its creators. When it comes to questions about finance, its answers are too vague to be very helpful.

But what if a version of ChatGPT was integrated with a firm’s digital database and did have access to someone’s financial details? With a bit more development, there’s no reason why the AI couldn’t give specific advice on which retirement account would be an optimal fit, or how a new parent could balance saving to that account with contributing to a 529 plan.

[More: AI financial planning: What does ChatGPT mean for the future of retirement planning?]

As firms across the industry work toward offering one-stop shops for all of a person’s needs, there would be more than enough data for an AI to get as specific as a human advisor could be.

Financial advisors could also take advantage of generative text AI like ChatGPT. How many advisors actually enjoy writing client outreach materials like blogs, email newsletters or social media posts? It takes time, there are compliance headaches to keep in mind, and writing simply isn’t everyone’s best skill.

An AI connected to an advisor's existing outreach technology could generate a post at any time, about any topic, that an advisor and their compliance team could quickly review, edit and send. Integrate a CRM system with some personal details about the client and it could even tailor messages across your client base.

Finally, the technology can vastly improve the back-office platforms that firms use. For example, rather than clicking around to find the right document or workflow, what if the advisor could just say “pull me up the documents needed to open this account,” and, voilà.

The point is, this technology is here today, and it isn’t going away. While advisors are in no immediate danger of displacement — in fact, ChatGPT actively recommends a human advisor over itself, as Michael Kitces found — simply repeating the “people will always need a human advisor” mantra like it’s some immutable law of nature won’t stop the inevitable march of progress.

Human history is littered with occupations that have been replaced by technology. How advisors choose to evolve will determine whether they are next.