Investors want AI-powered advisors, and fintechs race to meet demand

Most clients believe AI will help their advisors, a Morgan Stanley report finds.

Investors are bullish on financial advisors using artificial intelligence, and fintech companies are racing to meet the demand.

Three-quarters of investors believe AI will help advisors better serve their clients, according to a recent survey by Morgan Stanley Wealth Management. Of the 924 investors surveyed, 63% said they would be interested in working with an advisor who leverages the technology, with investors between the ages of 35 and 44 showing the most enthusiasm.

However, the study also found that 82% of investors don’t believe AI will fully replace their advisors, and 88% agreed that human-to-human relationships are still important.

“While AI is clearly groundbreaking, and we are just scratching the surface of its potential impact within financial services, this data aligns with an insight we’ve known for some time: The clients who are most engaged with their financial advisors are also the most satisfied,” Jeff McMillan, head of analytics, data and innovation for Morgan Stanley Wealth Management, said in a statement. “Within this context, AI should be viewed not as a replacement of human guidance, but as a powerful tool to help turbocharge a financial advisor’s practice management and client interaction capabilities.”

[More: AI for wealth management: Advisors must evolve to survive in the AI era]

Morgan Stanley is one of several firms that already have an AI application on the market for their advisors. The company was an early partner with OpenAI and is using its GPT-4 technology to create an internal chatbot that advisors can use to query Morgan Stanley’s library of proprietary content.

They have been joined by Morningstar with the generative text AI “Mo,” which debuted at the company’s annual conference in April and went live this week. Mo will be available across Morningstar’s flagship products, including Advisor Workstation, at no extra cost to advisors.

Built using Morningstar’s investment research library and Microsoft’s Azure OpenAI service, advisors can use Mo to surface and summarize insights and analysis in a conversational formal. If a client comes in with a question about a specific investment, an advisor can query it into Mo and get an answer based on Morningstar’s research and editorial content, said James Rhodes, Morningstar’s chief technology officer and president of data, research and enterprise solutions.

Morningstar also envisions Mo helping advisors to use its products. For example, rather than trying to figure which sort of proposal is needed for a certain account, advisors can type in “run a proposal for me,” Rhodes said.

“We’re in a world where there is so much data and so much information that sifting through that to separate out the signal from the noise is becoming increasingly challenging,” Rhodes told InvestmentNews.

The current swell of AI technology is a pivotal moment in the history of technology, akin to moving written content onto CD-ROMs in the ’90s, or uploading CD-ROMs onto the internet in the 2000s.

“This is very similar to that type of moment. This is an opportunity and a transformative technology for the industry,” Rhodes said. “How can we leverage the tech in a responsible way that is really going to unlock the benefits of it and really democratize the tech for investors to use to become successful?”

Responsibility is key, because along with AI’s mainstream popularity has all been an increasing awareness of its limitations. People have pointed out that technologies like ChatGPT frequently produce factual errors in their reporting and make them sound convincing, so how can financial advisors trust the information that services like Mo produce?

Rhodes admitted that Mo’s answers are not right 100% of the time. However, the company has guardrails in place to help it be more accurate than consumer-facing AI programs. Like Morgan Stanley’s AI, Mo only pulls from Morningstar’s internal data, not the entire internet. It also put constraints on Mo so that it can only answer questions related to finance.

[More: Morgan Stanley partners with OpenAI on internal chatbot for its advisors]

“We made very clear choices over which partners we were going to use and how we were going to implement a system to make sure data was secure and private,” Rhodes said.

In addition to Morgan Stanley and Morningstar, Riskalyze, FMG Suite, Hearsay Systems and Orion’s Redtail CRM have all introduced different forms of AI functionality for advisors.

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