When it comes to the field of wealth management, the sky is the limit for AI. Industry expectations for this new technology could not be higher, provided advisors and investors know what to expect.
To learn more about AI and how it is changing the financial advisory business, investment news We checked in with David Bailin, CEO and founder of CIO Group. CIO Group is an independent, AI-powered wealth manager that helps you identify opportunities and risks that other advisors may not see.
investment news: Where do you think AI is currently being applied most effectively in wealth management, and how do you think AI will shape the industry over the next 3-5 years?
Bailin: To understand the impact of AI on wealth management, you need to understand what AI can do today and how its capabilities will expand exponentially. Today, AI is a talking machine. Users ask complex questions and get thorough answers. Tomorrow, AI will be your colleague. literally. So for wealth managers, AI agents will be able to read and summarize the news, monitor and send alerts to companies, and conduct full-scale market research. By 2026, AI agents will work in 20-30 minute sprints.
It may sound far-fetched, but in just a few years, long-horizon AI will allow chief investment officers to have AI agents work all day long on CIO-related tasks. Long-form AI will be able to perform administrative tasks that are core to asset management, such as compliance monitoring, portfolio monitoring, and model and risk management. And AI agents will also be interactive. That’s where we’re going.
What AI is not good at is looking ahead, understanding events that have never happened before, and making strong decisions about them. Therefore, understanding the limitations of AI is essential when building new wealth management business models.
investment news: Do you see AI as a tool that will significantly reduce costs and time for advisors? If so, in what areas specifically?
Bailin: There is no doubt that AI can save advisors money and time. Many of the advisor’s tasks are administrative and repetitive. For example, AI performs financial planning, proposal writing, client communication, and early lead research. All of this can be automated without compromising quality.
However, deploying an AI agent requires advisors to spend time learning how to use the technology. The AI agent must be taught the task and learn the methods the advisor wants to employ. For “old school” FAs, this will be a much bigger change than using a new software package. As such, it is incumbent on RIAs and brokerage management teams to bring their FAs into the AI experience and help them understand how beneficial an AI agent can be for them. I predict that some advisors will see significant increases in efficiency and effectiveness, while others will see their business stagnate.
investment news: What inspired the creation of CIO Group and why was AI chosen as a central focus?
Bailin: CIO Group was founded to correct the flaws in traditional wealth management, where many investors unknowingly suffer from poor performance, generic portfolios, and high, opaque fees. Advisors charge for customization but often place clients in a standard model. And if someone has accounts with multiple companies, there is no one to manage the combined risk. Because CIO Group does not have the legacy systems and limitations of large banks, we are able to tailor our services with only the best interests of our clients in mind.
Investment news: What are the biggest hurdles you face when implementing AI in wealth management and how are you addressing them?
Bailin: Working with AI is complex but extremely valuable. There are few off-the-shelf AI solutions for wealth management in general, and none specifically for chief investment officer portfolio solutions. We assembled and sequenced various AI tools to achieve our goal. And it turns out that developing a business around AI is iterative. You have to build it, test it, implement it, then refine it, and do it all over again. Another hurdle has to do with what we call the “moment of judgment.” Certain processes require human intervention. For example, you may want to stress test two or three portfolio designs before choosing which one to implement. We incorporate these human reviews into our processes.
investment news: In your opinion, are there any areas where the potential of AI in the wealth management business is currently being overstated?
Bailin: The most problematic use of AI is in the area of models and algorithms for managing money. Portfolio management models currently in use do not have “Morningstar” ratings. More than 10,000 models are currently in use. And when clients ask advisors what is actually going on with the models under which they manage client assets, they often struggle to explain the fundamentals of their models or how they are responding to changes in geopolitics and macroeconomics.
AI does not replace human judgment and is insufficient to predict the future. It’s trained on previous events and data, and you may see valuable patterns. But what it doesn’t do is make good decisions based on truly new circumstances. This week, the United States intervened in Venezuela, threatening military action against Iran, negotiating the future of Greenland, and the administration proposing a cap on credit card interest rates. This increases market vulnerability. That’s why we need brains, not models. AI does not replace the hard work of decision-making.
This article is part of a monthly spotlight series focusing on AI in wealth for January. You can view the full content here.
