Opinion: How AI will change the way financial advisors manage their money
Innovation in financial advice is sometimes met with the existential angst of financial advisors who worry that new technology will negatively impact, or at least devalue, their work. We have experienced this cycle of hype over and over again in financial advice. This is because emerging technologies tend to automate or modify existing processes and services that were managed in the past, creating anxiety among advisors.
While concerns about job security are understandable, advisors should not be uneasy about the benefits that technology has brought to the advice industry, particularly the way it enhances the way advisors serve their clients. Technology has helped lower costs and overhead for advisors by providing efficiencies, including streamlining client onboarding and portfolio construction. And it has fundamentally improved our ability to provide customers with more personalized experiences, solidifying the ongoing value of coaching and guidance from human advisors.
The technology making headlines today is generative AI. This rapidly evolving technology has the potential and potential to change the way we interact with almost everything, including financial advice. As GenAI becomes more prevalent in technology solutions across industries, advisors will benefit from considering its meaningful benefits and accompanying risks, rather than viewing it as a fad or a threat.
Assessing GenAI’s advisor potential
There are many ways GenAI can provide value, but the most notable for advisors is how the technology can help streamline and enhance administrative tasks. Here are three time-extension benefits that GenAI can provide advisors: This allows us to prioritize more valuable work to help our customers achieve their goals.
1. Content Creation: GenAI can help create content for routine communications that advisors often spend time thinking about, delivering personalized communications like standard client check-ins, meeting reminders and market updates.
2. Knowledge Management: Another key use case for GenAI for advisors is quickly synthesizing and refining large amounts of information. For example, GenAI summarizes comparisons between products to help advisors make informed decisions for their clients faster. And rather than spending time analyzing forecasts, lengthy annual reports and commentary to understand the latest market conditions or outlook, advisors can use GenAI to immediately summarize key takeaways and turn these insights into value for their clients. . GenAI can also help advisors distill previous client correspondence into more easily digestible notes and prompts when preparing for future meetings.
3. Code generation: Just as GenAI can help develop and draft day-to-day content, it can also generate web page coding to help advisors upload content to websites for their clients faster. For large advisory firms, GenAI-enabled code generation can help advisors and software developers quickly turn out custom technology solutions that support client onboarding and back-office tasks such as data analytics, trading, and operations. It can also support your ability to more seamlessly integrate internal systems for CRM, trading and portfolio management.
Evolving technology comes with risks
GenAI poses a number of risks if left unchecked, further reinforcing the importance of having human advisors in the loop. The time-scale benefits of GenAI are compelling, but advisors must have a framework in place to address the risks to protect their practices and protect private client information.
For example, one risk is jumping into a GenAI-focused partnership without conducting sufficient due diligence. We have seen explosive growth in GenAI technology, and new tools and platforms that may seem suitable at face value are emerging every day. It is important for advisors to develop guidelines for vetting potential partners and technologies, focusing on expertise, experience, client set, and information security measures.
Another important risk advisor should be wary of is a lack of awareness of the parameters of the GenAI platform on which they are operating. GenAI technology may be private, but some platforms are public (e.g. ChatGPT). Supervisory measures should be considered to ensure that confidential, proprietary or customer information is not shared.
Finally, advisors should develop processes to identify risks associated with hallucinations and bias. Hallucinations can occur when an AI is prompted to provide a response to a question it has not been trained to answer. AI may not answer questions and instead provide false responses that sound hallucinating and convincing. GenAI tools may also suffer from racial and gender bias. For example, GenAI could recommend a lower investment risk tolerance for women, regardless of their actual risk appetite. It is important for advisors to understand the source data behind the AI they are using and have a plan in place to identify unexpected hallucinations and biases that may perpetuate biases or stereotypes.
GenAI allows advisors to more effectively manage their scarcest and most valuable asset – time – and focus more energy on creating personalized experiences and building deeper relationships with clients. Vanguard research shows that relationship-driven service is a key differentiator in providing value to clients, and that value increases when advisors build emotional trust. Advisors who welcome technology and integrate it wisely have the potential to deliver better outcomes for their clients.
Lauren Wilkinson is Vanguard’s President and Chief Information Officer for Financial Advisory Services (FAS).
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