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Do AI financial advisors have a place in the future of advisory?


The Role of AI in Robo-Advisory 2.0

Advanced technologies like AI financial advisors experienced a surge in popularity, particularly when we consider the mass affluent market.

Take for example this McKinsey insights article which focuses on the Asia-Pacific region and claims that the combined wealth of the mass affluent demographic is projected to hit $4.7 trillion by 2026 – rising from $2.7 trillion in 2021. If we look at the US, this region is predicted to make up $US 47 trillion of mass affluent wealth holders by 2025.

It’s a substantial segment of the wealth management industry, and one that is currently underserved. According to Capgemini, only 27% of wealth management firms serve mass affluent clients, with 36% firms claiming to further explore mass affluent services.

With a large market share and tentative steps by established firms to serve them, AI-driven financial advice has taken the place, offering cheaper, easier access to investments. The statistics drawn from the McKinsey article focusing on the Asian market represents general attitudes to AI advisory.

Around 80% of respondents claimed they “would or might consider” receiving advisory services via digital channels. What’s more 87% in developed markets and 64 percent in developing markets would be willing to pay for these services.

What can AI financial advisors do?

The service that AI financial advisors offer is broad, ranging from automated portfolio management to personalization to customer service support via chatbots. There’s no doubt that the machine learning processes are impressive and the quality of advice is better than you might originally expect.

Making decisions based on AI financial advice

Let’s look at the decision-making support that AI offers. The ability to process large amounts of data means that AI algorithms identify trends, market conditions, and information specific to the client. With this information at their disposal – and presented in an easy-to-digest format – customers are better able to make informed decisions.

Managing client portfolios

What about portfolio management, which is a key part of any wealth management service’s offering? It’s undeniable that client expectations have shifted and advisors have to cater to distinct demographics. With AI, a number of predefined rules and objectives dictate how the portfolio will be managed, automatically rebalancing client portfolios to optimize them and manage risk.

Personalized financial recommendations

As the client, your data, preferences, and specific goals will be used to automatically generate recommendations. Say for example you prefer high-risk investments, the AI advisor may recommend crypto-related opportunities that they would avoid in a more risk averse client.

Security, compliance, and fraud detection

In the same way that the tool can draw on data to offer investment advice, it can also provide valuable insights into potential risks going so far as to help implement risk management strategies. Likewise, it can detect anomalies in financial transactions to avoid fraud. Finally, AI tools can alert you to potential compliance issues, reducing the risk of violations in a heavily regulated industry.

The limitations of AI

Despite the incredible potential of AI, it’s not without its limitations.

Firstly, AI’s ability to perform depends on the data it has access to, which can influence investment decisions. It’s true that AI machine learning models can work with vast amounts of data, but if the data is incomplete, it can lead to biases or skewed results. It often takes a human eye to identify the factors at play that are currently missing based on market trends.

The next issue is to do with the emotional side of human dealings. AI, no matter how logical or complex, natural language processing can fall short when it comes to human nuances, particularly around making decisions.

As much as 90% of human communication is nonverbal, meaning that this is not an insignificant challenge for AI. The data-based insights may be sound, but there will often be other emotional or social factors that influence the ultimate decision. Likewise, the ability to come up with more creative or out-of-the-box solutions is diminished.

Beyond the nuance of decision-making, there’s an even greater emotional issue at play – trust. When people’s finances are at stake, particularly during difficult economic times, the human touch is an invaluable source of trust.

In a recent interview for Unblu, a representative of a large private bank summed up the importance of trust, saying:

“You build up most of a relationship’s trust during times of crises. If you are here for your clients with the right answers, they don’t forget it. This is when you can make a difference. Losing money is painful and if clients don’t feel pain, they are satisfied.”

Does AI have a place in the future of advisory?

As previously mentioned, wealth management firms or private banks have been slow to implement AI into their offering to serve the mass affluent sector. Instead, it’s been fintechs who’ve been stepping up to the plate, offering investment solutions that balance automated services with accessible costs. 

There’s no doubt that AI financial assistants can play a substantial role in financial advisory, particularly when it comes to aiding human advisors. We’ve spoken before about thinking of AI more as “Assisted Intelligence” rather than “Artificial Intelligence” given its immense potential to aid advisors rather than replace them.

At Unblu, we see three principal areas where this can be put to use.

Embracing the potential of hybrid advice

The true magic of artificial intelligence is in its ability to empower agents to carry out tasks more swiftly and accurately than through traditional means. There are numerous benefits to this as it allows advisors to deliver more meaningful communications, which translates into loyalty and retention.

This comes down to the quality of the experience. Any friction in the service experience, such as delayed responses, can negatively impact how clients perceive their advisors. AI support not only opens up new and more innovative channels of communication, but it also assists advisors in gaining access to information – allowing them to provide quality information more swiftly.

Identifying the moment of truth

Customization at every touch point is the defining feature of modern wealth management service experiences. But what do your clients want? It’s not an easy question to answer and depends largely on the individual’s investment goals, where they are in the customer journey, their risk tolerance, current doubts, needs, or more variables.

By analyzing unique correlations between financial events that we know are of importance to particular clients, advisors can gain key information. Using this information, they can determine the best time for client engagement and match offers with the right stage in their personal journey.

Becoming proactive in your support

Leveraging the moment of truth is a matter of understanding an individual client’s current thinking. But what about products or services that could be of interest to them in the future? Understanding a client’s mindset and motivations is more an art than a science, especially when we talk about proactive solutions. Too many, untailored suggestions can be seen as intrusive and have a negative impact on the relationship.

However, with AI, financial advisors can gain actionable insights that can influence the probability of them being receptive to product suggestions. As this relies so much on personalization, AI can assist in segmenting the advice propositions depending on the demographic parameters they have in place.

The best of all worlds with Unblu

Human advisors will always play a vital role in helping clients to reach their financial goals and provide the level of trust necessary for client relationships to thrive. However, being able to cut down on repetitive tasks and gaining access to data-driven insights can free up advisors to be present during more important investment decisions and provide a top client experience.

As the most complete suite of conversational products for the financial services industry, Unblu combines the best of AI and human-driven, customer-centric advice to empower wealth management firms and private banks.

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