Could AI displace the financial advisor?


We are living in an age where the increasing influence and power of technology is uprooting entire industries. The financial sector, particularly, is ripe for innovation.

Possibly the biggest evolving trend in this technological revolution is that of AI. A technology that has been growing over a number of years, artificial intelligence is beginning to break through all over the industry. The recent explosion of Generative AI platform ChatGPT has proven to be widely successful.

However, there has long been a debate as to whether AI – despite the potential benefits it could provide through automation – will negatively impact workforce numbers. Back in 2017, consulting firm McKinsey published a report estimating that between 400 million and 800 million workers globally could be displaced by automation by 2030.

FinTech Global recently spoke to a number of key industry players to ask whether AI could be about to take a role long held by the human – that of the financial or wealth advisor.

“We’re at the start of a new era,” said Joseph Twigg, CEO of Aveni. “Large language models are going to fundamentally change the way people work over the next four or five years, and there will be large impacts in wealth management and financial advice.”

Despite this, however, Twigg believes that AI is probably not going to be taking the advisor role anytime soon. “AI-derived advice from the black box is a regulatory minefield and it isn’t totally clear if that is actually what consumers want. What we all need to be working towards is ensuring that humans are using AI effectively as that will bring about a productivity revolution.”

According to Twigg, this secondary point will help to fundamentally change the economics and the approach of financial advice. “So, if you’re an advisor you will be able to see 2-3 x more clients whilst delivering an equivalent or better service. That’s something that really can’t be ignored.”

The uptake of AI in financial services has been fiercely strong to date. A recent study by the World Economic Forum found that 85% of financial services organizations are currently using AI in some form, while 77% believe AI will become essential to their business in the next two years.

However, Twigg has found that in terms of AI adoption to date, it has been quite niche. “Larger companies have fraud, cyber or AI type analytics in place. For example, AI looking at customer experience or automating compliance monitoring. But where we are going now is more general, and AI assistants will be everyday parts of our life, reducing admin burden.”

He added that he believes humans will become the validators and reviewers of the advice being driven by machine outputs. “This will ultimately allow the main focus for advisors and managers to be on relationship and customer support, and AI cannot be human – that bit we are clear on,” Twigg concluded.

Disruptive force

One of the areas of mutual agreement when it comes to AI is that by and large, it is and will continue to be a disruptive force on industry and after industry. Nowhere is this more keenly felt that on the role it may play in changing the workforce.

“The established fact is that AI tools don’t replace specialists themselves, but a specialist using AI tools can replace several other specialists,” said Vladimir Ershov, head of data science and machine learning at Clausematch. He cited research by OpenAI, which found that the anticipated reduction in labour could be between 10% to 20% overall.

Ershov remarked that the primary risk to consider is that we may be entering an era where job elimination doesn’t necessarily create new jobs – a keep issue for many as we enter the fourth industrial revolution.

He explained, “If there’s even a 10% chance that the successful rise of near-general AI systems could eliminate 20% of jobs and reduce the working conditions for half the employees due to increased competition in the job market – that’s a significant consideration.”

In the opinion of Ershov, the chances of that happening are well over half. “Just because technological progress has consistently created more jobs in the past doesn’t guarantee it will do so in the future. As the COVID-19 pandemic has demonstrated recently, unprecedented events on a global scale can indeed occur,” he concluded.

Meeting needs

In the view of Remonda Kirketerp-Møller, CEO of RegTech firm Muinmos, the question of whether AI could replace the advisor can depend on why someone goes to an advisor in the first place.

She said, “I use advisors for two reasons – first, because they know a lot about something I know very little about. Using an advisor helps me to cover the knowledge gap very quickly. Second, because they are capable of dispensing advice that is right for me, and reassuring me that I am operating correctly.”

GenAI will most likely be able to answer the first need, Kirketerp-Møller stated. “GenAI will probably be able to answer the first need. GenAI is able to instantly generate outputs like presentations, texts etc., which can expand and explain any topic. The levels of knowledge and accuracy levels are currently far from being “expert level”; but the assumption is that GenAI will get there soon.

“However, it is doubtful it would be able to dispense tailored-to-customer advice and reassurance anytime soon, so advisors will still be needed,” she concluded.

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