How will Generative AI impact wealth management?

How will Generative AI impact wealth management?

Generative AI has taken the world by storm in just a matter of months. As companies look to assess whether the technology could transform their operations, will wealth management become a natural home for it?

At the tail end of 2022, Chat GPT seemed to come out of nowhere. It dominated conversations everywhere and millions flocked to the platform to try it out. Users were leveraging the AI-powered chatbot to craft well written text, create code or even do a child’s homework. While the dust has settled and the technology is not dominating all headlines, there is a huge user base. The platform launched its public testing on November 30, 2022, and by the end of the first month it had 57 million users. Current estimates put the technology as having 13 million daily users.

Chat GPT might have established itself as the household name of generative AI tools, but there are many others in the market, or soon to launch. According to data from Acumen Research and Consulting the generative AI market size will grow at a CAGR of 34.3% between 2022 and 2030, going from $7.9bn to $110.9bn.

Wealth management is an industry powered by data. So technology like generative AI that can analyse various data sources and relay information in easy to digest forms, could become very valuable to wealth managers.

Graeme Condie – head of strategy & operations at investing-as-a-service platform Velexa – thinks the technology will transform how traders and investors process news, streamline information and organise unstructured data. This could improve risk management, insight generation and enhance decision making.

Condie noted that while this AI technology is still vulnerable to risk and error, as well as bias, there are ways to address these problems, “in a way that has not been possible with humans before.” This could lead to the creation of an objective trader or advisor.

“Ultimately this could also help democratise wealth management. It will no longer be about an individual’s education or financial literacy; automated advisors and recommendations algorithms can help drive decision making instead, opening up investing to a wider audience.”

Use cases for the technology

An area generative AI could transform in wealth management are chatbots and robo-advisors.

Just a few years ago the robo-advisor was a core trend in wealth management. These services provide retail investors with a personalised digital advisor that helps them with their investing. While the market is still going strong, hype around the space has dwindled. However, generative AI could give the space a new wind.

With the technology capable of analysing information and providing clear information, it could give customers a better digital communication system. If they have a question about their financial situation or a question about the market, the generative AI-powered chatbot could give them a clear answer, with the option for follow-up questions.

Fredrik Davéus – founder and CEO at Swedish financial analytics API developer Kidbrooke – said, “I think for highly structured situations this can provide a next level experience from today’s rather poor chatbot experiences.”

Chand Jethwa – WealthTech specialist at international payment solutions and infrastructure developer Currencycloud – sees generative AI having the ability to create significant cost savings and bolster efficiencies in several areas of wealth management. In that context, firms should use the technology as a tool to enhance their existing capabilities.

An example of this would be with chatbots and robo-advisors. Generative AI could help these tools adopt a more authentic understanding of human interaction, leading to more tailored engagements with customers.

Jethwa said, “For me, it has the capability to transform the industry by delivering greater personalised, data-driven insights, which results in a more efficient practice but I want to reiterate that financial advisors will still play an important role in building relationships with clients, providing them with the support and guidance they need to achieve their goals.

“However, making this happen won’t be a simple process. Firms must be fully on board with the AI-centric, societal changes and invest in the necessary technology and infrastructure necessary to maintain an evolving AI landscape.”

Condie also offered various potential use cases of the technology, including direct portfolio management, compliance management and customer interfaces. “Firstly, machine learning enables much better pattern recognition, which means over periods of time, it can make much better investment decisions. Secondly, identification, comparison, and collation of information can be much faster with AI than manually reviewing documents. Thirdly, chatbots are becoming more efficient and competent in answering client needs.”

A loss of jobs?

As mentioned by Jethwa, talk of technology is often accompanied by talk of job loss. Generative AI is no different. Earlier this year, BuzzFeed cut 12% of its workforce and replaced them with generative AI tools. While Jethwa is confident the role of the human advisor will not diminish, their colleague at Currencycloud had a slightly differing opinion.

Rhys Jenkins – senior sales development representative – said, “I have a slightly different perspective. I believe that workplace technology always has the potential for job displacement, but at the same time generate new roles (someone has to develop and manage the AI).”

However, Jenkins highlighted that there is a risk generative AI could fail to accurately capture the nuances and complexities of the financial markets, potentially caused by flawed assumptions. This would lead to poor investment decisions. Given that prospect, Jenkins said human expertise will remain paramount regardless of AI’s potential.

The importance of human oversight is something Condie also mentioned. With these technology systems becoming so advanced, it is becoming increasingly tough to fully understand them. This impacts the level of trust people can put into these systems.

Condie added, “What we have seen is there is a risk vs. reward conversation to be had when presented with a decision around weighing up the complexity of the system and the extent of the function it should fulfil.”

As an example, Condie likened the adoption of the technology to the development of autonomous cars. While these systems have been around for many years, they have not taken over the roads because the risk of a system and its consequences are too high. This is a similar risk versus reward system for wealth management and generative AI. “The most likely outcome in the foreseeable future is that it will not replace the Wealth Manager but act as a co-pilot. Think more SatNavs than fully driverless cars.”

Should they adopt early?

As with most emerging trends, timing is everything. Generative AI tools are still new, which means there are still a lot of uncertainties around its usage. For example, there could be issues with the technology that have not fully been realised, or regulators could weigh in and put controls about how it is used within certain industries.

However, leveraging the technology now could give firms a head start on competition. Whether this is using the technology to transform existing processes or experimenting on new use cases.

As to whether now is the perfect time for wealth managers to leverage the technology, Davéus believes there is room to use it, but uses are currently limited. “For writing very structured texts it can be useful but results still need to be fact checked by a human. Not sure anything other than text generation is useful for wealth managers at this stage.”

Condie believes that firms who are not already engaging with generative AI are already late to the party. “This may seem like it’s the early stages, but it is actually a very usable technology already, so firms can already start thinking about implementation. 9 out 10 advisors have shared that their firms have taken steps to act on their AI strategies. If you haven’t, you’re late. It might be overwhelming as there’s different pilot programs, and roll-out may not be clear, but there are so many use cases for AI – from hyper-personalization to operational optimisation to targeted communication.”

Echoing a similar sentiment, Jenkins also believed firms should start exploring the technology now. “While generative AI is still a relatively new technology, it is a rapidly developing field, and there is potential for significant advances in the coming years. By beginning testing and experimenting with the technology now, savvy firms may be better positioned to take advantage of its potential benefits as the technology continues to evolve.”

Its future in wealth management

As mentioned previously, the market value of generative AI is expected to grow substantially over the coming years. But how integral will it be to the future of wealth management?

Davéus believes it is too early to quantify how important the technology will be. “A lot of excitement and faddish sentiment at the moment.” When the hype has died down and people start exploring the technology’s merits, the true value will be understood.

Condie was a little more certified on its impact. “The technology roadmap for the vast majority of firms will include an AI stream – any that do not will be at a disadvantage to their peers, so it is in their interests to embrace rather than fight the tide. The challenge for each firm is determining how Generative AI can benefit each specific process within their business and what the cumulative value would be.”

While there are still uncertainties around the technology and several risks that need to be considered, Jenkins is confident about the future of the technology. He concluded, “What we are seeing with AI and machine learning could indeed become the next industrial revolution.”

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