The group editor takes a look at the issue of clients’ use of AI and digital tools to get clued up about money, financial planning and investment, and how advisors fearful perhaps of their business should think about it.

What happens when a wealth advisor finds themselves in the same position as a doctor whose patient has used AI search tools to be better prepared for a consultation? 

That’s the sort of question that a lot of wealth managers, private client lawyers and advisors must now ask themselves. It may be that these AI tools make for savvier clients (or patients), but it might also mean clients, thinking they have the universe at their fingertips, will cut advisors out of the loop. And clients will make mistakes and still look for someone to blame rather than a machine. 

In late May, this news service published a feature about what advisors should tell clients who use AI for guidance. One of the takeaways was that AI, like other computer-based tech, is pregnant with potential and used wisely, can benefit all sides. But it also touched on dangers of client hubris, AI’s “desire to please”, and clients’ unrealistic expectations. Perhaps there’s nothing new under the Sun here with transformative technology, from the printing press to radar.

But whatever the situation at present, the phenomenon of AI-empowered clients, of all ages, is here to stay, perhaps with a bias towards the younger generation. 

Your correspondent continues to engage with wealth industry figures on how they see clients using AI, and how specific the examples are becoming. Wendy Eldridge, retirement plan advisor at US-based Carnegie Investment Counsel, has seen large change. Eldridge has worked in retirement planning for more than 25 years and brings plenty of perspective. 

Getting prepared
“The biggest change I see with our families is how they prepare. Clients are running fund letters, K-1s, and market commentary through AI tools themselves before we ever talk,” she told me when asked about the matter. (Fund letters and K-1s are two distinct documents investors receive from private funds. Fund letters update someone on how the fund is performing. K-1s are official tax forms that report a share of the fund's profits and losses.)

“They [clients] show up to meetings having already formed a view. Five years ago, that reading was fully delegated to us or to their investment advisors,” Eldridge said. 

Eldrige said the industry underestimates how much people use AI to handle the supposedly “boring” stuff in wealth. “Bill pay review, pulling data out of tax documents, tracking entity filings, reading insurance policies: That is where families actually lose time, and it is where we see AI getting used every day,” she said. 

“Clients will now ask a model to walk them through something like a [Grantor Retained Annuity Trust] or the tax outcome of a charitable gift before calling their advisor. The first draft of the analysis is free now. What they pay us for has shifted toward checking that work and catching what the model got wrong, and it does get things wrong,” she continued. 

There’s further evidence that clients across the board use AI ahead of and after meetings with advisors. 

A global study, issued on 14 April, by BridgeWise, an AI-powered investment intelligence platform, said its research showed that AI adoption has “passed a definitive tipping point”: 78.3 per cent of its 2,100 respondents already using AI tools for investment-related queries, and nearly half (45.7 per cent) emerging as power users, consulting AI “always” or “often” when seeking investment information. (Respondents were employed adults with active bank accounts aged 18 to 75, located in 19 countries.)

BridgeWise has even come up with how to calculate how confident people are in using AI, depending on which region of the world they’re in. For example, Middle Eastern respondents are the most confident, ahead of those in Asia, North America and Europe. The firm has created the “Global Wealth AI Optimism Index, a proprietary benchmark that evaluates the 19 included countries through four weighted pillars: Adoption (AI usage frequency), Confidence (trust in AI accuracy), Edge (perceived competitive advantage when using AI for investing), and Momentum (intent to replace traditional investment research with AI). 

It is not a foregone conclusion, it should be said, that younger people are always keener on AI than their older peers. As this story, featuring Fannie Wurtz, head of wealth and distribution at Amundi, said, use of digital investment platforms is high across all age groups, with more than two-thirds of those aged 51-60 digitally engaged. (That report also noted a difference in the digital engagement in different countries.)

We are now, it seems, in a world where instead of gleaning all their financial know-how from parents, employers and schools, people are increasingly using TikTok, YouTube, and ChatGPT for guidance. Regulators around the world worry about cases where “finfluencers” turn out to be fraudulent – although this problem did not start with AI. There have been sellers of financial "snakeoil" for generations - hence the existence of regulators and the importance "let the buyer beware".

Lest all this sounds a bit negative, it is important to consider what AI and other tech has made possible for clients. As Carnegie's Eldridge says, technology means consolidated reporting is no longer something nice to have, but a standard item. That is a big plus. “Families with assets spread across trusts, partnerships, and private investments want one current picture of their balance sheet, not a quarterly PDF. The obvious next step, and some platforms are already there, is asking questions of that data in plain English,” she said.

An important point, which I am sure is widely shared across the industry around the world, is that, as Eldridge said, is the need to avoid putting sensitive financial information into consumer AI tools without knowing where that data goes. As the AI juggernaut rolls on, it is also likely that advisors will want to ensure their clients don't put their privacy at risk (which can also damage advisors' business). Innovation may help. In early June, Custodia, a Swiss “privacy-first” AI startup announced it had launched Sentinel, a “physical AI thinking appliance” developed for those, such as family offices, science researchers and professionals worried about entrusting intellectual property to the cloud. I expect this “privacy AI” area to grow quickly. For family office principals, for example, this will be an important concern in how they use AI. And advisors may increasingly want their clients to demonstrate privacy hygiene when it comes to the sort of AI models they use. I expect this to be a theme.

It would be trite to just dismiss concerns about clients’ use of AI as the bleatings of advisors worried about losing their jobs. Those concerns are real – the “creative destruction” of capitalism, to coin a phrase – is part of any technological change and can be unpleasant for those caught in the middle of it. But if AI can genuinely make clients better equipped in their financial life, it will benefit advisors in certain ways, such as being able to offer more value-added services and leave aside the gruntwork. Such is the way of innovation. But like all such journeys, there are bumps in the road, and a few bad drivers and traffic congestion issues along the way. At least people are having lots of conversations about all this, which is why I am broadly optimistic about the path wealth management is on.