The financial advisors who are jumping on the generative AI bandwagon

December 1, 2023 3:10 PM

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 this week 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. The report's findings stem from a survey of 300 financial advisors, aged 36.5 years old on average, managing an average of $40 million in client assets, according to Advisor360°.

"To some extent, humans have always feared being displaced by technology. The so-called lump of labor fallacy has been well documented — yet there are more jobs today than ever in human existence," Advisor360° President Darren Tedesco wrote in the reporter's introduction. "Yes, jobs will shift over time based on advancements like AI, but new ones will be created. I think of the job market as a pie that is not a fixed size.

"AI will help grow the pie, not shrink it. Based on the results of our survey, many advisors agree with that assessment," he said.

The survey, led by Coleman Parkes Research on behalf of Advisor360°, was conducted in September and October 2023 among financial advisors and other executives at firms with approximately $9 billion in assets under management and more than 1,000 employees on average.

Here's a quick look at the key findings of the 2023 Advisor360° Connected Wealth Report.

Not afraid of the future

Only 21% of the respondents surveyed consider generative AI to be a threat to their personal livelihood, and 31% call it a threat to the industry.

The survey also indicates that a new reality is beginning to form around the way advisors work with their clients because of generative AI. About 83% of respondents already have access to tools with natural language generation (NLG) technology like ChatGPT, but only 44% say they currently use them for client communications.

"The up-and-coming generation of financial advisors sees generative AI tools as potentially effective for growing and managing their businesses," Tedesco said. "Advisors are looking to AI to take on administrative and operational tasks so they can focus on higher value activities, like meeting with current and prospective clients."

Seeking AI guidance

The study suggests that having access to GenAI tools and using them are two very different things.

Advisors identified the top challenge with generative AI being that they are hamstrung by firm policies on the technologies they can use, a fact that causes frustration for advisors interested in living on the cutting edge.

While nearly all respondents (97%) say their firms have AI strategies, 43% say advisors should be more involved in shaping them.

More than half (53%) of advisors say their firms do not have established policies on how to use generative AI, though firms seem to be working to address this. Twenty-seven percent of advisors surveyed say generative AI policies are in development at their firms.

Waiting for the regulators

Wealth management firms may be slow to develop policies in the absence of clear guidance from regulators, according to the study. The advisors surveyed say a more concrete direction is needed, with 68% asking for specific regulatory guidance around AI.

Only 32% of respondents believe existing rules will suffice in the future.

"The wealth management industry has only started to scratch the surface on what generative AI can do," Tedesco said. "Firms with the right systems in place joined with comprehensive and clean data can expect to realize mammoth gains in efficiency, as generative AI is able to tackle more streamlined processes and automated tasks faster and with fewer errors."

Making firmwide processes better

AI is also seen as holding the promise to streamline many facets of an advisor's day-to-day operations. Eighty-four percent of those surveyed see AI-enabled platforms and automation benefiting front- or back-office tasks, or both.

"It's easy to envision these tools further reducing hands-on employee hours in the more mundane and tedious operational duties that are not client-facing, freeing up time for higher-value activities," the report states. "Based on their pragmatic assessment of how AI can enhance client service, many advisors feel that it will aid their relationship building efforts as financial planners, not replace them in the planning process."

Understanding the risks

The optimism survey participants have toward AI suggests that it has a prominent part to play in wealth management in the years ahead. Just 16% of next-gen advisors fail to see the value of AI for themselves or their firms. But where do the biggest risks lie?

According to the survey, bad data is the biggest hurdle in advisors' existing tech setups, followed by a lack of automation, and AI-enabled capabilities and end client capabilities.

Advisor360° leaders said wealth management firms that address these potholes are putting themselves in a stronger position to capitalize on the benefits of AI.

"Even as more of us learn to trust AI, these technologies will require human tuning and configuration," Tedesco writes. "Think of these technologies as 'co-pilots.' For example, if you are an advisor using ChatGPT or Bard, it is unlikely that you would have it compose communications that are sent to your clients without your close review.

"While advanced use cases are still emerging, we expect AI to continue to grow and become more commonplace at the advisor level."