Unleashing a New Era for Wealth Management
October 12, 2023
AI is already transforming the way we live and work, and we’ve only just begun to see its impact. Already, technological solutions are hitting the market that we couldn’t even have imagined a few years ago, and the rate of growth is only going to accelerate.
In fact, I believe we are at the beginning of an explosion in AI-driven innovation as impactful as the Cambrian Explosion was on biology and evolution. We can expect AI to unleash massive growth in productivity across industries, including financial services and wealth management. The impact on wealth management will be profound—and help determine which firms survive and thrive, and which don’t.
Data, AI & the Biological Big Bang
For hundreds of millions years before the Cambrian Explosion (also known as the Biological Big Bang), life on earth was largely limited to simple, multi-celled organisms. But around 540 million years ago, everything changed. In a very short period (OK, it was a few million years, but that’s the blink of an eye in geological time), evolution went into hyperdrive. Virtually all the major branches of both animal and plant life present on Earth today first appeared at this time.
Scientists are still debating the causes of the Cambrian Explosion. One fascinating theory, which Andrew Parker explores in his book “In The Blink Of An Eye: How Vision Sparked The Big Bang Of Evolution,” posits that the emergence of biological vision, and the sudden explosion in visual data, was a key cause of the sudden change.
According to Parker’s theory, the emergence of vision enabled a little creature called the trilobite to hunt more effectively. And this led to an evolutionary scramble for survival and adaptation, including the rapid emergence of countless new life forms.
In a similar way, AI gives financial firms a new (and extremely fast and effective) way to “see,” process and respond to data. As a result, they can create efficiencies and seize new opportunities for growth. Firms that fail to embrace AI, beginning with large language models (LLMs) like ChatGPT, are likely to find themselves prey to those that do. To learn more, check out “Deep Learning Illustrated” by Jon Krohn, Grant Beyleveld and Aglaé Bassens. It is a great resource for understanding AI generally, and in particular the similarities between biological vision and AI-driven insights. We may not be able to predict all the ways AI will transform the wealth management industry in the coming years. However, there are already clear steps firms can take in the near term. In fact, innovative organisations are already leveraging AI to:
- Massively increase adviser productivity and lower the cost of investment advice and wealth management services.
- Increase retention of existing clients with AI-driven personalisation of digital channels and services that increase stickiness of clients.
- Detect growth opportunities, for instance by identifying brokerage clients with a high propensity to switch to a high-value advisory or discretionary service.
Scaling the Power of Advisers to Serve Clients
The value of advisers lies in their ability to provide timely and personalised investment intelligence, and AI provides a powerful way for them to do that at scale. AI can also help firms retain scarce adviser talent by eliminating repetitive manual tasks and focusing them on growing their business.
Here are just a few of the ways AI can scale adviser capacity:
- Communications and documentation. Advisers spend much of their day communicating with clients and partners. LLMs like ChatGPT have already demonstrated their great potential to generate effective, personalised communications and documentation on the fly, freeing up advisers for higher-value activities.
- AI-powered investment advice. Using LLMs, firms can track CIO communications and research, and then transform this intelligence into research-driven, personalised investment advice.
- Portfolio optimisation. With portfolio optimisers and solvers, wealth advisers can automate portfolio rebalancing to achieve research-based, compliance-aligned objectives.
- AI-powered compliance. Regulatory compliance is increasingly complex and resource-intensive. Supercharging KYC and related processes with AI can lower costs and remove manual processes from advisers’s plates, and while speeding resolutions and elevating client experiences.
Retaining Existing Clients with Value-Add Services
Just as Cambrian trilobites benefited from their ability to see their environment, AI can help advisers detect the needs of their clients proactively—and then offer personalised, value-add services that increase satisfaction and retention.
For example, AI technology can help advisers estimate the sentiment of their clients (e.g. are they happy or unhappy with the services?), proactively approach unhappy clients, and discuss how to improve the relationship. Likewise, firms can leverage AI to learn about implicit preferences of clients and then propose thematic investments that match their values—at scale and in a fully automated way.
Converting Brokerage Clients into High-Value Advisery Service Model
When augmented by technology and AI, data-driven CX can help wealth advisers quickly identify brokerage clients who would better be served by an advisery or discretionary mandate—a win-win situation for both parties. The client receives evidence-based and personalised investment advice with better long-term outcomes. And the adviser grows the business and increases client stickiness by converting low-touch clients into high-touch ones.
With AI-powered tools including LLMs, firms can go beyond traditional analytics to detect opportunities by leveraging not just structured data but also unstructured data such as e-mails, client complaints and voice notes. In addition to identifying clients likely to benefit from enhanced services, these solutions can help communicate the benefits of those same services.
From Incremental Change to Explosive Growth
For years, analysts and thought leaders have made big predictions about the impact AI will have on the financial services industry. However, AI-driven innovation has been largely incremental—until now. The launch of LLMs like ChatGPT has demonstrated the growing maturity of AI and opened up potentially endless new uses. And firms are already jumping aboard.
There is no doubt that AI and related technologies will redefine success for wealth advisers. So, now is the time to embrace AI to lower costs, increase client retention, and drive higher-value relationships.
Head of Product Strategy International (EMEA and APAC)