We talk to a Canada-based provider of enterprise customer management solutions to the financial services industry. The topic is AI, and what it can do for the sector (and what the limitations might also be).

The acronym “AI” has become so familiar that almost everyone reckons they understand what it means. Artificial intelligence continues to excite a mix of fascination and fear. Will it take my job or make it more pleasant and productive?

AI is certainly a regular wealth management topic, with much talk about “robo-advisors” and using tech to remove the tedious bits of an advisor’s job. It is worth reflecting how long in the tooth AI is, however, if only to avoid hype. By some definitions, AI is more than 80 years old. 

“The first computer was made in 1938 and only in the past five years has 90 per cent of the world’s data been created. It is data that is required to make AI work,” Matt Bogart, head of sales and marketing at NexJ Systems,said. Bogart is based in Toronto. “Making a utility out of all this data is only now coming to the fore.”

With wealth management, AI can be used to improve the customer experience, drive revenues and cut costs. 

“People have become really familiar with being at home and making purchases online; they have been watching a lot of Netflix and bingeing on it. They’ve become more familiar with the predictive element of what is of interest to you,” Bogart said.

And, as with streaming services, with its predictive algorithms and settings, AI can hopefully deliver “mass customization” in profitable ways. That’s the hope, at least. 

Large firms are spending heavily in the area. Bogart noted, for instance, that a quarter of the staff at Goldman Sachs are software developers, equating to more than 10,000 employees focused specifically on building systems for their firm. 

“And they [Goldman Sachs] are not alone. Most firms have innovation centers that focus on developing applications they may deploy within the firm at a later date,” he said.

Businesses continue to acquire AI-focused startups, as TD Bank Group did when it bought Layer6 in 2018, he continued.

“Where I have seen the significant benefit to date is in the area of `next best action’ where an advisor is presented with a dashboard of priority ranked tasks they can choose to complete. Digital engagement is also at the forefront as advisors hyper-personalize information they deliver to their clients,” he said. 

Potential
Back in 2017, the publisher of this news service issued a research report showing that 43 per cent of wealth management professionals globally see AI technology offering great potential to improve investment performance and risk management. AI can improve efficiency, client experience and outcomes by being injected into a whole range of decision-making and information management processes within wealth management firms. And a variety of new areas in investment, such as behavioral finance and ESG approaches, rely on managers being able to handle vast amounts of data, making AI not just a nice-to-have technology, but indispensable. 

Bogart said that AI can help monitor and flag up big life events (birth of a child, weddings, first house purchase, change of job, cashing in on a company stake, etc).

But it is a mistake to think everyone, such as younger adults, want to entrust finances to a robot.

“We have seen investors in the 18 to 25-year-old range have lost faith in robo advisors. The rationale for this view is that they [robos] performed well in a bull market….as we run into turbulence you lose comfort that there is someone behind the strategy. There is a comfort in thinking someone is managing your money…trust is a huge factor,” he said. 

In talking to advisors, Bogart said he isn’t trying to be prescriptive, but suggest possibilities.

“We are not trying to tell advisors what to do but what might be advantageous to them to do. When we are able to automate a number of routine tasks, like data entry, it reduces requirements to add administrative support staff in a business and it makes a business more scalable,” he said. 

The scalability point is particular important as regulatory costs and clients’ expectations of service continue to rise. It partly explains, for example, the level of industry M&A as firms seek economies of scale.

Putting minds at rest 
FWR asked Bogart how attitudes toward AI can change, given how artificial intelligence gets a bad rap in popular culture and can inspire worries about humans losing their jobs.

“Establishing confidence in AI begins with trust. For example, people were initially skeptical of using map apps for directions and shortest time to a destination,” he said. “Over time, however, it was understood that the AI was generally correct in presenting the fastest route. Confidence grew and the apps became ubiquitous. As AI is introduced to assist with a variety of tasks there is a period of adjustment and validation. In wealth management, taking an evolutionary approach, automating common tasks that are indisputably correct engenders trust and adoption,” Bogart continued. 

“Technology has become more accessible over time. It used to be that to gain the greatest advantage an organization had to build out a data center and all the servers and infrastructure on site. As the infrastructure has moved to the cloud and the applications are available as a subscription service the smaller organizations are able to benefit in much the same way as larger organizations,” he said.

“Wealth management is an industry that often measures success by assets under management and, as such, there will continue to be consolidation. However, independent advisors' networks have a much greater ability to service their clients using the technology available to them then ever before,” Bogart said. 

“There is no question that advances in technology have given us an ability to do things we historically may not have thought possible. Technology is a great enabler, the efficiency and productivity gains are immeasurable. Robo-advisors, automated, algorithm-driven financial planning services with little to no human supervision, are great examples of that. The key here is the lack of human supervision. Without a human with whom to build a trusted relationship, a person that is empathetic to the unique situations of their clients and can advise on a financial plan is a primary reason why investors abandon tech-only platforms,” Bogart added.