How AI dominated the wealthtech conversation in 2023

December 15, 2023 11:19 AM

When we look back at the history books, 2023 may go down as the year of AI.

Artificial intelligence came into the year red hot by riding the momentum of ChatGPT's public release in late 2022 and never broke its stride. As a result, it was impossible for anyone even remotely interested in financial services technology to avoid it over the past 12 months.

But what conversations among industry insiders, regulators, veteran advisors and others revealed is that we're just getting started. AI is poised for a major next act, and the decisions made in 2023 will provide the framework for the technology to grow into the future.

Scroll down to see how the Financial Planning team has covered artificial intelligence's breakout year, and what it means for AI in 2024.

Leveraging AI to gain the competitive edge

While the ability for AI to reshape wealth management is still a "what if" for some, many advisors are already putting the technology to work in practical ways.

In January, Andrew Altfest, president of New York-based RIA Altfest Personal Wealth Management and CEO of FP Alpha, and Technology Tools for Today (T3) Conference Producer Joel Bruckenstein provided practice management tips to wealth managers eager to make the most out of their artificial intelligence investments.

In a conversation led by financial services industry consultant Suzanne Siracuse, the duo of fintech insiders discussed the impact AI can have on a firm's profitability, planning processes and efficiency.

Altfest and Bruckenstein said modern clients have a demand for advanced planning, but the ability to provide these services at scale is growing more difficult as that demand — and client expectation — rises.

Read:

How advisors are leveraging AI for an unfair advantage

The gift or the curse?

What long-term impact will ChatGPT have in the world of financial services?

Created by AI and research company OpenAI and unleashed upon the masses in November 2022, ChatGPT is an AI-powered chatbot based on the GPT (Generative Pretrained Transformer) language model. With the help of deep learning techniques, the tool has the ability to generate conservational, human-like responses to text inputs.

But replacing financial advisors? Out of the question. That's the answer veteran financial planner Reese Harper and many of his peers give when asked. It's also the answer offered up by the tool itself in a Tweet shared by Michael Kitces shortly after the turn of the new year as buzz around the AI-driven text generator began to build to a boil.

But the excitement around the tech is palpable and impossible to deny. It's also something those investing in fintech startups are salivating over.

Read:

ChatGPT: Miracle, meme or menace?

Mastering humanity in the AI era

As AI's potential impact on the financial advice industry looms heavy, psychology of money expert Brian Portnoy believes one of the major challenges is the sheer speed at which the technology is moving.

That's why when attempting to break down what it means to be more human and provide human-first advice in an AI era, advisors should start by asking the right questions.

"Things are moving too quickly. We don't know. You don't know. ChatGPT-4 replaced Chat GPT-3.5 … I mean, this is happening in the space of weeks, not years," said Portnoy, the founder of Chicago-based behavioral finance consultancy Shaping Wealth and one of FP's 23 people who will leave a mark on wealth management in 2023. "So we're not going to try to be overly foolish in trying to predict the future. We kind of think that the power of questions matters here."

Read:

Behavioral finance experts on the benefits of becoming superhuman wealth advisors in the AI era

Securing Ws with AI

Orion Chief Behavioral Officer Daniel Crosby spoke at Financial Planning's annual INVEST conference this week in New York

Complex but worthwhile changes in the technology used by advisory practices require careful due diligence and a healthy skepticism about the so-called human capabilities of robots, according to experts.

In three sessions at Financial Planning's annual INVEST conference in June, financial advisors, technology entrepreneurs and behavioral finance experts described the lengthy but radical evolutions in wealth management firms that often follow the hiring of a new vendor or a shift to a different software. The panelists agreed that the wrenching adjustments often prove worthwhile — as long as planners identify how the technology benefits them, their clients and their firms' employees, rather than taking the people out of the equation.

For example, the common "fear-mongering" rhetoric about artificial intelligence contends that robots will replace humans eventually, noted Daniel Crosby, the chief behavioral officer of advisor technology firm Orion Advisor Solutions. Those arguments ignore how, for "so much of the work we do, it requires human touch," Crosby said.

Read:

Where AI wins — and doesn't — in financial advisor technology

Avoiding the insanity of being anti-AI

In July, Ezra Group CEO Craig Iskowitz served as moderator of the AI & Automation Summit for Financial Advisors, a virtual event aimed at growth-minded advisors and wealth managers itching to weave the latest AI technology into their practices.

Part discussion and part presentation, the event featured speakers Josh Smith, CEO of VRGL; Andrew Altfest, CEO of FP Alpha; Anand Sheth, CEO of Pulse360; and Rick Williamson, director of training at Redtail.

The summit also included a special appearance from Snappy Kraken's Angel Gonzalez, who gave the first live demonstration of the "AI Content Helper," a new capability coming to the financial services marketing platform.

Along with exploring the distinctions between technologies like generative AI, machine learning and robotic process automation, the summit focused on practical applications of AI that advisors can take advantage of today.

To illustrate that, the speakers showed a complete prospect journey facilitated by AI-powered tools currently available from the participating companies. From first contact to follow-up client communication, the audience saw how an advisor armed with these tools can deliver increased functionality without adding more hours to the day.

Read:

Wealthtech experts say advisors who don't embrace AI now are 'crazy'

The SEC enters the AI conversation

Advisors and broker-dealers know to avoid conflicts of interest in their investment advice to clients. But what if they're turning to artificial intelligence or robo advisors for the recommendations?

Securities and Exchange Commission regulators are worried that advanced technologies like machine learning, AI and sophisticated algorithms may be spitting out advice that goes against investors' best interests — sometimes without advisors and brokers even realizing that's happening.

In July, the commission voted 3-2 to advance a 243-page proposed rule meant to make financial planners of all stripes explicitly responsible for monitoring such systems for ways in which their recommendations might undermine clients' interests and to eliminate those conflicts as much as possible.

Read:

SEC wants planners to be responsible for AI, robo advisor recommendations

AI is not coming for your job

As artificial intelligence grows more sophisticated, many Americans fear the technology will someday take their jobs. Financial advisors, however, may not need to worry.

That's the impression left by an August study from Charles Schwab. The results paint a mixed picture: After surveying 1,000 401(k) participants across the country, Schwab found that almost half (49%( of workers felt comfortable getting financial advice from an AI bot.

On the other hand, very few workers actually did so. However comfortable they felt about it, only 4% of respondents actually adopted the advice of a bot. Instead, clients clearly preferred the human touch. While 74% of workers said they were likely to accept computer-generated advice, almost all of them — 95% — said they would follow advice from a human professional.

Read:

Is AI coming for wealth managers' jobs? Not yet, research shows

Regulators call for strong guardrails

For each "wow moment" the rise of AI has produced among the general populace in 2023, warnings about the potential harm the technology could inflict if wielded irresponsibility have followed close behind. As a result, the list of overseers pushing wealth managers to spill the details about their looming AI plans in the name of consumer protection is growing.

In early August, Massachusetts Secretary of the Commonwealth William F. Galvin directed his securities division to investigate how firms are using the technology in their interactions with investors.

The division sent letters of inquiry to a number of organizations "known to be using or developing the use of AI for business purposes in the securities industry." Correspondence was sent to J.P. Morgan, Morgan Stanley, Tradier Brokerage, U.S. Tiger Securities, E-Trade, Savvy Advisors and Hearsay Systems.

Of noted interest to Galvin is whether the supervisory procedures firms have in place regarding artificial intelligence ensure the technology will not put the interests of the firm before clients' interests. For firms that have already implemented AI, the division will be evaluating the disclosure processes in place.

Read:

Regulators turn up the volume on calls for AI guardrails as the technology spreads across wealth management

Staying ahead of the curve

As the financial services industry continues to come up with new ways to jam AI into the workflows of countless professionals, advisors are looking to leverage the buzzy tech to get more efficiency while leveling up their own knowledge.

According to a survey released in October by wealthtech management consulting company F2 Strategy, wealth management firms remain highly interested in using AI to improve their businesses, and many have budding AI projects in the works.

And contrary to what the popularity of generative AI may suggest, firms are looking the closest at AI that can save time; reduce or eliminate "not in good order" process; and duplicate data entry.

Read:

4 big AI trends that wealth managers should pay attention to

Advisors who will lead the AI revolution

While some look at AI's rising power and profile and brace for the worst, the next generation of financial advisors seems willing to welcome the technology with open arms.

A report released in late November by Weston, Massachusetts-based fintech firm Advisor360° found that many younger advisors believe generative AI tools like ChatGPT are poised to do more good than harm when fully unleashed upon the wealth business.

For example, 64% of the advisors polled in the firm's second annual Connected Wealth Report call generative AI "a help" to their practice, while 57% believe it is a benefit to the industry.

Read:

The financial advisors who are jumping on the generative AI bandwagon