Listen to this articleA recent Deloitte report predicts that by 2027, 78% of retail investors will use generative AI applications as a source of investment advice.
Don't be surprised if your conversation with a financial advisor soon feels relatively automated — you're likely chatting with a bot.
The financial advisory industry is poised for a seismic shift brought about by artificial intelligence (AI), which will overtake friends, family, social media, and even local financial advisors as the go-to source for personalized investment advice.
Deloitte predicts that retail investors will use a wide range of generative AI applications tailored to investment advice to help them make decisions, but more extensively than AI-native companies. Many traditional financial institutions will also offer AI-powered financial advice engines as customers become more familiar with artificial intelligence-powered investment tools.
Opinions vary among industry insiders about the level of AI-driven disruption investors should expect in the near future.
Automated advice
AI taking over personal finances seems like a distant dream at this point: From the internal combustion engine to the internet, the time lag between the invention of a new technology and its adoption across society is often longer than initially predicted.
But unlike previous breakthroughs, consumer AI tools don't require new hardware. With anytime access to the Internet and just a few clicks away, users can easily perform a web search to find AI resources. Because generative AI applications are available to anyone with a Wi-Fi connection, this is the first time we've seen a major technological revolution come to fruition so quickly.
The speed at which AI is being adopted sets this technological advancement apart from anything that has come before.
“Deloitte's 2028 prediction may seem bold, but rapid advances in AI technology and growing consumer comfort with digital tools make it achievable,” says Jolie Bernstein, founder of Bernstein Investment Consultants. “There are already several AI financial planning apps that offer automated investment advice, including Betterment and Wealthfront.”
Online investing tools and consumer wealth tracking applications democratize financial planning by removing barriers that block resources otherwise reserved for professional traders and advisors.
These advisor platforms are intuitive to use, with no Zoom meetings required. After signing up, consumers set financial goals and complete a risk assessment. The AI-driven platform leverages the response to create and manage a diversified portfolio. It also handles tasks like portfolio rebalancing and tax loss recovery, providing a hassle-free investment experience with minimal fees and personalized advice.
With tools like these readily available, paying a financial advisor for portfolio allocation doesn't make much sense.
“Investment management is becoming a commodity,” says Angela Dorsey, financial planner and founder of Dorsey Wealth Management. “Advisors who only offer investment management are at risk of being replaced by AI.”
Humanity
Fortunately, many financial advisors probably don't need to worry too much about AI, since most advisors offer services beyond investment management: Humans can delicately manage sensitive issues like estate and tax planning, provide broader life planning advice, and help clients achieve their goals while supporting them through divorce and retirement.
Advisers believe this personal touch gives them a competitive advantage.
“The value of a financial planner goes beyond investment management; it's a dynamic, iterative, ongoing process,” says Brett Koeppel, CFP and founder of Eudaimonia Wealth. “Until artificial intelligence can empathize and connect on a human level, its value will remain limited to the technical aspects of financial advice.”
“Human advisors can stay relevant by providing the kind of personalized, empathetic guidance that AI can't replicate, and by integrating AI tools into their services to strengthen their value proposition,” Bernstein says. “They'll also need to keep up with other disruptive changes, such as blockchain and fintech innovations, that have the potential to further transform the industry.”
Human advisors will also need to act as stewards for the bots as they gain a deeper understanding of business practices. Effectively differentiating tasks and responsibilities is key.
Concerns over regulatory compliance and complex liability issues are central: when technology-driven decisions go awry and automated systems make errors, who is responsible? The advisor, the technology provider or the asset manager?
As AI rapidly permeates the financial advisory industry, it is expected to revolutionize investment management by putting sophisticated tools in the hands of all investors. But not all advisors are worried; they believe the human touch is essential to the job. Advisors who can effectively provide empathy, nuanced guidance, and support through complex life events will have an advantage in this new era of generative AI content.
But advisors must also harness the power of AI technology to automate tedious administrative tasks and gain an analytical edge in forecasting and accounting. Tomorrow's advisors will effectively leverage AI for the technical aspects of their work and focus more of their time and energy on providing the in-person coaching that only humans can provide.
This article was produced by Media Decision and distributed by Wealth of Geeks.
