AI in Wealth: from Science Fiction to Science Fact

Can machines really take the place of humans when it comes to building trust? And what does this mean for financial services, and in particular, wealth management? 

      “This is the world now. Logged on, plugged in, all the time.” 

We live with Artificial Intelligence (AI) every day, without realizing it. Navigation apps such as Google Maps use AI to analyse the speed of traffic. Various online banking apps encourage the use of facial recognition technology features to provide additional security. And digital smart assistants, such as Siri and Alexa, use AI by taking voice commands and translating them into actions, such as adding items to shopping lists, playing music or calling a friend. The list is endless. 

Whether you believe it offers opportunities or risks to society, no-one can dispute that its importance is set to grow. And one industry that is fast adopting this technology for good is wealth management. While we are fully aware that deep fake copying voice or facial recognition for fraud will drive cyber security solutions, we also believe there are benefits of AI to the wealth industry.

     “What is it that makes us human?  It’s not something you can program.”

AI benefit 1: Personalized Portfolio Creation with Ease  

A growing number of investors want to invest in companies or funds that align with their personal values, beliefs or favourite brands. And this particularly applies to the increasing numbers of Millennials and older GenZs looking to invest. Making up an audience of over 3 billion[1], this population is different to traditional wealthy individuals. As well as preferring brands to be more aligned with their personal values[2], this population also expects to access online, 24/7, tending to only respond to messages that resonate with their current needs. 

Currently finding investments that align with one's values or preferred brands can be time-consuming and challenging. However, AI offers an opportunity to address this. Incorporating investor beliefs into the recommendation process is possible by utilizing AI to identify investment opportunities that align not only with a clients’ risk profile and preferences but also with their convictions, searching behavior. By providing tailored recommendations that take personal values into account, AI can be used to enable investors to build investment portfolios that reflect their beliefs, fostering a stronger connection to their financial decisions.

AI benefit 2: Enhanced Investor Engagement
Traditional investment approaches can sometimes leave investors feeling disconnected from their financial decisions. All too often investors can’t fully understand or relate to wealth management companies and funds in their portfolios or are just overwhelmed by too many investment product choices, much of which doesn’t meet their individual needs. AI is ideal for overcoming these challenges. 

It can be used to integrate personal beliefs into customized portfolios, enabling wealth management providers and invested companies alike to foster a stronger sense of ownership and engagement with their investor clients. By creating a deeper connection between investors and their investments, AI offers the chance to enhance the overall investment experience and encourage long-term commitment to financial goals, ultimately contributing to better investment outcomes and hopefully greater client satisfaction.

AI can also combat where investors face an overwhelming array of investment options. When once it was difficult to determine which products or portfolios best align with their goals, risk tolerance, and beliefs, an AI-driven recommendation engine simplifies this process. By intelligently analyzing and filtering investment options, only those that truly match an investor's unique criteria need be presented. This streamlines the selection process, helping investors overcome decision fatigue, confidently make informed choices, and stay focused on their long-term financial objectives.

AI benefit 3: Democratized Personalized Investing
Despite the number of people with easy access to financial services increasing in recent years ( 65%[3] vs. an unbanked level of 50% in 2019), the vast majority of consumers still face a huge gap preparing for their future.

The Organization for Economic Cooperation and Development (OECD) has highlighted that the dependence ratio of older people (i.e. those aged 65 and over as a proportion of those aged 20-64) will more than double from the current figure of 22%, to 46% in 2050 globally. This is putting pressure on the younger generation to support a growing pensioner population, calls for transparency today and most likely requires a re-written intergenerational contract.  

Over the past decade, the retirement age has had to be increased in many countries to contain the pension crisis. However, this increase isn’t enough if the population isn’t also saving.  At present, there is clearly an issue with the under-provision of affordable advice and support for the masses.  As many as 22%1 unfortunately either don’t have access to services to protect their future or aren’t using these due to product complexity or inappropriateness to their personal needs. 

Personalized advice and investing has often been perceived as a luxury available only to high-net-worth individuals or those with access to specialized advisors. However, by leveraging AI technology, personalized investing can be democratized; available to the masses cost efficiently, providing tailored investment recommendations for investors at all levels.  AI can enable all investors to enjoy the benefits of personalized financial planning and gap analysis without the need for expensive, human services.

AI benefit 4: Reduced Information Overload

To meet individual and varied needs, wealth providers need to offer a variety of products and services.  But evidence from a range of psychological experiments suggests that too much choice can lead consumers to make bad decisions or no decision at all. In Sheena Iyengar and Mark Lepper’s famous study in 2000, consumers who were given a choice of six varieties of jam were ten times as likely to purchase as consumers who were asked to choose between 24 varieties.

As with the jam example above, the vast amount of financial information available today means that investors can easily become overwhelmed and struggle to make sense of it all. An AI-powered recommendation engine can combat information overload by efficiently processing and analyzing relevant data to deliver actionable investment insights. By presenting investors with a curated list of investment options that match their specific needs, risk tolerance, and preferences, AI can help them cut through the noise and make more informed decisions, ultimately improving their overall investment know how and financial outcomes.

     “Sometimes things happen that we just can’t change”

AI is here to stay. Especially within the finance industry (as indicated within the above chart).  Love it or hate it, we have to embrace it and leverage the good that can come from it, while clearly minimizing the bad.  And with it offering the opportunity to address financial inclusion and improve investment decisions, AI has real potential to transform wealth management as we know it, these benefits are already being realized because the technology is here now. But AI will never replace a personal relationship and thus trust, rather add service to faster and more tailored decision finding. 

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[1] Financesonline research: 113 Key Generation Z Statistics 2021/2022 -  Characteristics & Facts You Should Know + MSCI - How Millennials Consume Character Trait or Economic Reaction?

[2] THE DELOITTE GLOBAL 2022 GEN Z & MILLENNIAL SURVEY (Sept 2022)

[3] additiv Consumer Survey 2022