The advent of artificial intelligence (AI) has revolutionized the landscape of wealth management. While human advisors have traditionally been relied upon for their expertise, AI technologies now offer data-driven insights and algorithmic accuracy that can complement and enhance human decision-making in wealth management. 

Financial advisors relied extensively on manual data analysis and lengthy research to identify potential clients, frequently focusing on demographics and net worth. However, with the introduction of AI, things have changed dramatically.   

AI algorithms have proven highly effective in delving into diverse datasets to detect market trends, assess risks, and identify investment opportunities that may not be readily apparent to human advisors. This advanced data analysis capability plays a crucial role in making better decisions and supporting proactive portfolio management tactics in the realm of wealth management. 

Companies must upgrade their data, especially since the emergence of AI in financial services would require them to embrace large language models and other complex tools, according to a recent EY report. To prepare data for the future, the professional services network suggests implementing an integrated data-management plan across all lines of business, strengthening cybersecurity, and mining client data “to previously unplumbed depths.” 

Ten Years Gone 

The wealth management industry began investing in AI technology over ten years ago. According to a new survey, those investments could yield significant returns in the coming years. 

ThoughtLab, an economic research firm, collaborated with Deloitte and financial software platform FNZ on a report, “Building a Future-Ready Investment Firm,” which covers a wide range of themes from globalization to cybersecurity. However, AI was arguably the central theme. 

AI was the most popular digital technology for wealth management providers, with 58% of 2,000 individual investors and 250 wealth advisors stating they planned to devote more resources to it in the next three years. Compare and contrast with other surveyed categories, such as data analytics (42%), blockchain (22%), and internet of things/sensors (8%). 

“The race for competitive advantage in wealth management is increasingly being fueled by advances AI and machine learning (ML). We expect these technologies to play an increasingly important role as firms look for ways to create hyper-personalized wealth management services tailored to investors’ unique financial goals, risk tolerance, and holistic wealth picture,” said Carl Robertson, global CMO, FNZ. 

Meanwhile, 69% of wealth management executives agreed with the statement that “AI will significantly change the way their organizations work over the next three to five years.” 

Split-Decision 

However, these industry leaders are divided on the technology’s potential implications, with 52% agreeing that “advances in AI and related technologies will have a greater impact than any other trend over the next three years.” The executives also agreed with the claim that AI automation and scalability have resulted in “significant performance gains” for roughly half (48%) of their organizations. 

“Just as Uber took advantage of inefficiencies in travel and AirBnB in hotel stays, AI will squeeze out inefficiencies in investing, taking care of the elements that humans don’t (or are not perceived to) add value, such as in portfolio construction,” said Yoni Assia, Founder & CEO, eToro, a multi-asset financial services company. “This isn’t confined to younger investors. Over-55s are ready to integrate AI and ML into their investment approach.” 

AI can often detect patterns that humans would miss. Individual investors were largely supportive of utilizing AI for this purpose, but not to the point where it would completely replace humans. 

For example, 92% of respondents were “somewhat willing” to allow AI to investigate products and services on their behalf. Similarly, 81% were open to receiving investment advice from an AI. Meanwhile, 79% of individual investors trusted AI to create plans tailored to their specific needs, and 78% to conduct risk analysis. 

On the other side, 54% of investors were “not at all willing” to let AI handle their portfolios directly. Approximately 33% were hesitant to allow AI to “ensure data privacy and security” or “reduce [their] dependence on [an] advisor.” 

“I don’t see AI having the ability yet to fully understand a client’s picture and to take that into account when tailoring a solution,” said Nathan Erickson, principal financial advisor at Captrust. “An advisor can plan for [multiple] scenarios and make decisions based on likely outcomes—and on information that can be difficult to convey to an AI.” 

Gen X, Gen Z, Millennials 

Investment firms are adjusting their strategies to target a broader range of demographics. Currently, 98% of investment firms target Gen X and plan to continue doing so over the next three years. These firms also intend to pursue Millennials more aggressively: 94% within the next three years, up from 81% presently. However, Gen Z will most likely see the greatest rate of increase, with 42% of organizations aiming to target them in three years, compared with 18% currently. 

While most wealth management professionals appear to be bullish about AI, the technology has the potential to drive some out of business. According to the report, 60% of Millennial and Gen Z investors believe that AI would replace the need for a human advisor by 2030.