OPINION OF THE WEEK: Wealth Managers Must Explain AI's "Value-Add" Role

Tom Burroughes Group Editor 5 October 2023

OPINION OF THE WEEK: Wealth Managers Must Explain AI's

In my weekly column I ask how wealth managers, advisors and others serving HNW clients should explain the role that AI is making, and will increasingly make, in service and product offerings.

When this news service held its annual family offices fintech summit in Manhattan a few weeks ago, one of the topics that generated plenty of audience engagement was AI. That’s not a surprise. The topic of artificial intelligence is everywhere. And in my travels and business meetings with firms, the way that AI might change the face of wealth management comes up repeatedly. A question that I have is at what point do firms need to explain as transparently as possible what role AI plays in their offerings?

Even allowing for some scepticism about the opportunities and scary scenarios about AI, this looks like an area that isn’t going away. When Silicon Valley tech and investment luminary Marc Andreessen penned an article on “Why AI Will Save The World”, and stated why the fearmongering is overdone and unwarranted, it was another turn on a debate that has arguably been the talking point in the industry this year. The sector is looking at all kinds of use cases that AI has or may have. Examples include detecting fraud and cybersecurity threats; generating investment recommendations; risk management; loans and credit decisions; predictive analytics; regulatory compliance, and more. A significant part of the wealth management value chain is going to feel the impact of AI. 

In another recent event in London, I was told by fund managers that AI could hold the key to beating some of the weak productivity growth in the UK, for example. This lousy performance has various causes (lack of infrastructure spending and the right work skills; a period of ultra-low rates that have created corporate “Zombies”, and so on). And maybe AI could handle some of these challenges by removing certain work chores. Another fund management firm, Bellevue, has told me that AI, along with other tech, could be crucial in cutting through the administrative costs of the UK’s existing healthcare system. There’s a large prize that beckons, it seems, just over the horizon. Some of the figures around AI boggle the mind. According to a recent Goldman Sachs report, the potential of generative AI could raise global GDP by 7 per cent, which amounts to $7 trillion in GDP and a 1.5 per cent boost to productivity growth over the next 10 years.

We have heard of such promises before, but just as undue optimism might not be wise, so is unwarranted gloom. AI is a catch-all term that applies to a set of processes and tools that, in some respects, aren’t different to the gadgets and devices that humans have been building for centuries, and which lifted living standards to a new level.

For wealth managers, therefore, having new tools to handle tasks such as risk management or “next best action” – as at Morgan Stanley – isn’t something out of the ordinary. But to go back to my question at the top of the page, how should wealth managers and bankers explain the role AI plays in delivering the services clients pay for?

It might be a glib response to suggest that it doesn’t really matter, and that all clients want is efficient service, period. Clients don’t bother about what is “under the hood” of their service offering than they do about a car's fuel injection or ABS brake systems work. After all, do clients want to know that their RMs and investment managers use a Reuters or Bloomberg terminal? Maybe not. But I think that clients are going to want to have clearer ideas of what drives their service particularly if or when fees go up, and markets aren’t performing well. Clients who find advisors aren’t easy to contact, and who end up using a chatbot instead, might for example want to understand what they are getting. If it takes ages to be onboarded, or worse, if a person is “de-banked” or moved to another segment without much warning, then they might wonder if they’ve got on the wrong side of an algorithm. 

AI is going to shake up all kinds of sectors, and clients at wealth managers are bound to read stories about how this or that service has changed – sometimes for the better, sometimes not. They’ll want to be informed about what their wealth management firms and advisors are doing. And of course, clients will expect to know that the data on which AI depends is properly protected. AI can create new ways to spot problems, but it will almost certainly create new conduits for mischief making.

Smarter wealth managers might even try to walk clients through some of the processes they use to do the job, much as the designer of luxury watches or other objects sometimes invite clients into the workshop to see how things are made. Far from destroying the “mystique” of it all, it may reinforce the respect and admiration that a client has for what they have. And done right, the use of AI to handle some of the chores of business life might be equally beguiling to clients.

Remember also that many HNW individuals will, in coming years, be making money out of all this technological ferment, so they’ll be able to relate to how their advisors use it.

AI is moving so fast that it’s hard to keep up. What I think can be said at this point is that how wealth advisors and others in the sector explain AI’s role in the value chain is going to an important part of how they prove their worth to clients. Treating it as a black box gizmo that does clever stuff, without much beyond that, is not going to be good enough.

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