Artificial intelligence (AI) has already begun to transform the money business. With the rise of generative AI chatbots, the financial services industry is changing the products offered by financial advisors. AI can potentially assist with wealth management, tax analysis, fraud detection, portfolio management, compliance, and much more.
Wealth management refers to investment advisory services from financial advisors to help clients meet their financial goals. This includes managing liability exposure, creating investment strategies, retirement planning, and more.
Benefits of AI
There are many potential benefits of using AI in wealth management for both financial advisors and their clients. AI can better leverage big data, improve the customer experience, speed up processes, and improve access to information.
Some of the AI systems in use today are service provider-facing, but more and more AI is being integrated into customer-facing tools. For instance, Schwab Assistant is an AI-powdered chatbot that helps users access real-time stock market information, view account performance, complete tasks, get answers to financial questions, and more.
Jon Stein, the co-founder of Betterment, has a vision of democratizing wealth management (i.e., putting more power and knowledge into the hands of individuals) and believes AI can help the financial industry make progress toward this vision.
AI can make data more accessible by delivering personalized information in a language and format that is best for the user. For example, an AI recommendation system could potentially analyze a variety of client inputs (e.g., financial goals, spending habits, risk tolerance, loans, and portfolio activity) to create a savings plan, balance portfolios, open new accounts, or refinance existing loans.
Greater access to personalized information can improve financial education for both customers and employees. For financial advisors, AI offers many efficiencies and has the potential to break silos. Silos in business occur when people or departments do not share their data across the organization. This is often due to system limitations with data sharing. AI can bridge this gap and encourage collaboration. AI chatbots can also be helpful with brainstorming, drafting written content, explaining topics and articulating ideas, translating words and phrases, and more.
According to Nitin Tandon, chief information officer at Vanguard, his company is using AI and machine learning to power its advice engines. It uses data points such as retirement age, savings, spending habits, and investment behaviors to generate personalized financial plans for clients.
Limitations of AI
AI also has its limitations. AI software and systems may not have access to real-time data. Since AI systems learn over time and change responses accordingly, they can be unpredictable. Without proper oversight and training, AI systems could put investors at risk.
Human insight and knowledge are always critical to any investment decision. AI chatbots cannot develop the same personal relationship one has with a human wealth advisor. Human-to-human communication and connection cannot be replaced so easily.
In the Classroom
This article can be used to discuss financial management (Chapter 16: Financial Management and Securities Markets).
- What is wealth management?
- What are the benefits of using AI for financial advisors?
- What are AI’s limitations in wealth management?
This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell, Linda Ferrell, and Geoff Hirt.
Blake Schmidt and Amanda Albright, "AI Is Coming for Wealth Management. Here’s What That Means," Bloomberg, April 21, 2023, https://www.bloomberg.com/news/articles/2023-04-21/vanguard-fidelity-experts-explain-how-ai-is-changing-wealth-management
"How Artificial Intelligence is Transforming the Financial Services Industry," Deloitte, https://www2.deloitte.com/za/en/nigeria/pages/risk/articles/how-artificial-intelligence-is-transforming-the-financial-services-industry.html
Joe McKendrick, "Artificial Intelligence Opens Up the World of Financial Services," Forbes, February 24, 2023, https://www.forbes.com/sites/joemckendrick/2023/02/24/artificial-intelligence-opens-up-the-world-of-financial-services/?sh=7a543a72b0ee