In recent years, the terms “artificial intelligence” and “machine learning” have made their way into mainstream use—they’re no longer futuristic concepts or sci-fi plot points. Instead, these tools are being embraced across industries as a means to increase efficiency and improve customer experience.
As the financial services industry gradually incorporates new technology, artificial intelligence and machine learning (AI/ML) are naturally making their way into advisory firm tech stacks. But what, exactly, is AI/ML, and how will it impact the financial services industry?
What Is Artificial Intelligence and Machine Learning?
The term “artificial intelligence” refers to the broad ability of machines (primarily computers) to mimic human thought and complete tasks that are normally performed by humans. Some common examples include self-driving cars, search assistants (like Amazon Alexa or Google Home) and chatbots on websites. Machine learning is a specific tool that falls under the umbrella of artificial intelligence.
AI systems use algorithms or other technology to advance their capabilities. They are able to identify patterns to make decisions, while continuously improving accuracy over time. Essentially, machine learning allows the AI system to gather data and continue learning with each decision made.
Why Financial Advisors Need to Understand AI
Many financial advisors associate AI with robo advisors, since this is probably the most common use case of AI in finance. But ChatGPT is another recent example of AI/ML entering the mainstream space. ChatGPT is a language learning model chatbot designed to predict questions, write responses, and learn from its interactions with users.
It may not be “right” or as robust as an actual advisor, but the average person can ask ChatGPT to create complicated financial models. Even if the competition isn’t on the same level as an advisor, advisors will still have to battle the perception that it is.
Clearly, AI/ML is well on its way to giving humans greater access to information and making even mundane tasks more efficient. While it’s impossible to predict what, exactly, will happen, we’re already seeing AI/ML change the way we create new processes, accomplish day-to-day tasks and interact with businesses or professionals.
Financial advisors who are able to understand and embrace the use of AI/ML will have the distinct advantage of evolving alongside consumers and providing an AI-driven client relationship that stays in line with their growing expectations for a more personalized experience.
How Are Advisory Firms Currently Using AI?
You may not realize it, but AI/ML is already deeply embedded in certain aspects of the advisory profession. Many popular financial technology platforms and software tools have found effective ways to incorporate AI. This is commonly done in a way that’s not meant to replace the value of a human advisor, but rather increase efficiency, improve accuracy, and hyper-personalize the customer experience.
Firms are using ChatGPT, mentioned earlier, to help transform hard-to-read reports and overwhelming data into financial analyses they can share with clients. Other companies, like Holistiplan and FP Alpha, use AI/ML to quickly scan tax returns and develop a comprehensive tax report in seconds.
Key Benefits of AI for Financial Advisors
From customizing client emails to taking the manual time and effort out of drawing up reports, AI/ML is becoming increasingly relied upon by financial professionals across the industry.
It’s an incredible time-saver, which means advisors have the means to spend less time crunching numbers and more time offering valuable one-on-one time with clients. Improved efficiency has been the ongoing goal of fintech providers, and AI/ML is the key to unlocking that next level of productivity.
3 Challenges Associated with AI
As much potential as AI/ML has to improve the industry, it’s not without challenges.
- Can AI Replace Financial Advisors?
A common concern professionals have, both in finance and elsewhere, is the possibility of AI/ML replacing them altogether.Are you giving away your value as a financial advisor if you incorporate AI into your practice?
You can breathe a sigh of relief, because the answer is an almost certain “no.”There is no replacement for human connection and interaction, and AI in financial technologies doesn’t try to take that away. Instead, it’s designed to help free up your time — actually increasing your value to your clients.
- The Pace of Technology Change
Another challenge is the fast-paced nature of technology. Sometimes, it feels like by the time you master one platform or tool, it’s already become outdated.
While this is a valid concern for advisors, you may find it helpful to keep an eye out on larger industry trends. Those tend to be slower moving, and they can better dictate where the profession is heading from a bird’s eye view. Unless technology is a passion of yours, there’s really no need to get too in the weeds with fast-moving updates or changes.
- Staying Compliant with New Technologies
This does lead to another concern, however, which is the general uneasiness some financial professionals have about using evolving technology in the right way — and in a way that’s compliant with current rulings.
The sooner your firm is able to embrace that AI/ML is here to stay, the more time you have to get familiar with its capabilities and understand its potential impact on your record keeping and compliance reviewing. It will require close communication with compliance, but there’s no reason to fear using AI in a complementary way to real, human advice.
Where Is AI Headed in the Financial Services Industry?
How will AI/ML shape the financial services industry in the coming years? We expect to see drastic improvements over the next five years or so, with a large focus on refining the customer experience. As machine learning continues to seep into clients’ everyday lives, it’s natural that they’ll expect an integrated and improved client experience from their advisors as well.
Machine learning is, by nature, designed to continue learning and improving on itself. This makes it likely that as AI/ML continues evolving, it will become more predictive and less reactive to real-world scenarios. In terms of compliance, it’s possible that AI/ML could actually improve firm-wide compliance by creating less stress and allowing advisors to be more client-focused.
It’s hard to predict how the SEC and other regulators will treat AI/ML integrations in the short term, but it’s possible this will help compliance efforts by predicting likely events and preventing potential violations.
Skience + AI/ML
How does Skience fit into the world of artificial intelligence? Skience helps advisors create the “next best action” by using predictive analytics. Giving your team access to centralized data makes it possible for advisors to offer clients proactive guidance based on a single source of truth.
AI integrations in the advisory industry are not meant to replace advisors altogether. Rather, advisors can use these tools to offer a more holistic and personalized experience, while providing that much-needed human touch.
By having all the data at your fingertips, such as what Skience provides through Data Consolidation and Replication, you have everything you need to analyze trends and provide a more nuanced customer experience in a compliance-friendly way.
How Skience Can Help
Protecting your data is essential to your advisory business, so be sure to choose tech partners who value your data as much as you do. Skience offers a full slate of solutions to keep your data not only secure and compliant but also accurate, easily accessible, and dynamically capable of providing a 360-degree view of accounts and insights into your business. Schedule a demo with us today!