The author of this article – a chief executive of a large tech firm working with wealth managers – elucidates the various ways AI is, and will be, changing the sector.

The future has arrived, and we must grasp the opportunities and the significant responsibilities, argues the author of this article: Karl Roessner, CEO, Vestmark. (More on the author below.) 

AI is shaping up, arguably, to be the dominant non-geopolitical topic of the year for wealth management. And the editors are pleased to share these thoughts from the chief executive of a large US firm very much in the center of technology. The usual editorial disclaimers apply to the views of guest writers. To respond and enter the conversation, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

Artificial intelligence is poised to be the magic wand that transforms the entire lifecycle of financial services, from the first handshake with a client to the intricate balancing act of wealth management. By harnessing the power of AI, financial advisors, who already juggle multiple roles, can now wield a treasure chest of resources at lightning-fast speed. When AI is the digital companion, service can soar to new heights, making the realm of wealth management as accessible and efficient as a well-oiled machine. Industry outlook remains positive: According to the 2024 Accenture AI in Wealth Management Report, nine out of 10 financial advisors believe that AI can help grow their book of business organically by more than 20 per cent.

As AI technologies become more integrated into financial services, however, it’s essential to lead with trust. This involves ensuring that AI solutions are reliable, transparent, and aligned with your firm’s values. Trust in AI signals responsibility and, by emphasizing this, wealth management firms can strengthen their reputation for reliability and integrity.

The road ahead promises real gains for financial advisors who stand at a pivotal moment for AI adoption. With a growing client base and an impending wealth transfer, advisors face increasing demands. By supplying AI with access to a vast body of information, including client portfolio details and client data, there is an immense opportunity to improve service levels at scale. The future is here, and it’s up to us to understand the possibilities as well as the great responsibility that comes with new technology.

Freedom from friction
AI will revolutionize wealth management, but most importantly, it is expected to elevate personalized client service at scale and reduce complexity for the advisor. At present, “personalization” as an advisor begins with taking a standard template – such as portfolios, financial plans, or risk tolerance questionnaires – and modifying it using information gathered from the client to better fit their needs. Technology enhances the customization of traditional offerings, leading to more complex and bespoke products and experiences.

However, increased configurability and flexibility can create complexity, causing friction for advisors and slowing down personalized client offerings. Direct indexing serves as a prime example: Direct indexing adoption is hindered by advisors’ difficulty in explaining its benefits clearly to clients. Here, AI can step in. AI-driven tools can simulate personalized scenarios, helping clients grasp the benefits of direct indexing tailored to their unique financial goals. 

These interactive tools also allow clients to explore different potential outcomes. Complexity is reduced for the advisors in these examples because AI can distil complex concepts into succinct, meaningful communication from advisor to client.

AI, particularly the rise of agentic AI, where the generative capabilities of large language models are combined with "chain of thought" reasoning and API-based tools, fundamentally changes the landscape. Imagine a scenario where, instead of advisors needing to know and understand all the capabilities of their software, a helpful AI copilot – an expert in the tools available – can execute tasks and provide recommendations on how best to meet client needs. For instance, if a client is concerned about the tax implications of transitioning from an ETF to a Direct Indexing portfolio, an advisor might spend days manually building and analyzing proposals.

However, just as AI can clarify the value of direct indexing, the AI copilot can instantly handle such analysis, presenting results within seconds. This allows advisors to stay in control of wealth management while leveraging AI to manage complex tasks efficiently and enhance client service across many portfolios, all while maintaining the highest quality of analysis and communication.

Trust, transparency must drive AI
While advisors and client service representatives can use AI assistants to generate responses to complex questions, when it comes to customer data, privacy and security are paramount. AI adoption must prioritize data privacy and protection. As firms integrate AI into their operations, it is vital to prepare clients for an AI-driven world by emphasizing data security. At present, the financial services industry is grappling with unique challenges in adopting AI due to stringent regulatory constraints and concerns over privacy and client data. 

Financial institutions handle vast amounts of sensitive client information, and there are strict contracts outlining how this data can be used. By keeping AI processes within secure environments, such as internal platforms, we can prevent data breaches and unauthorized data sharing.
 
Additionally, using agentic AI ensures that the AI executes tasks within the confines of the software, mirroring the actions an advisor would normally take. This means that the AI cannot “invent” new methods for building or rebalancing portfolios – it can only perform tasks allowed by the software. There is always a risk of errors, both AI and humans can make mistakes. However, when technology solutions come with established methods to identify and correct these mistakes, wealth managers will find AI much more helpful as well as accessible.
AI will not replace human advisors but will augment their capabilities to navigate and serve in an increasingly complex financial industry. The human touch remains irreplaceable, especially during times of market stress. Clients value the reassurance of speaking with knowledgeable advisors who can guide them through complex financial decisions. 

AI will not only enhance advisors’ effectiveness but also transform how they use technology and meet client expectations. By taking the right steps and implementing AI solutions judiciously, the industry can harness the benefits of AI while maintaining the trust that is critical to wealth management relationships.

About the author
Karl Roessner is the CEO of Vestmark, a provider of portfolio management solutions and outsourced services for financial institutions and their advisors.