Wealth management's new era: Leveraging AI for transformation

Historically a specialized sector, its expansion has been remarkable post the 2008-09 Global Financial Crisis (GFC) and the ensuing strict regulations.

A recent Economist article, citing Bain & Company, anticipates a substantial surge in wealth assets. Bain projects a jump in liquid wealth assets from $130 trillion to nearly $230 trillion by the decade's end, opening up $100 trillion in investable capital.

Wealth management is undergoing a rapid transformation.

Dynamic shifts: What's reshaping wealth management? Several factors are influencing this sector's transformation:

• The global economy has consistently grown by over 3% yearly for the last two decades.
• Regional markets, especially in Asia and Latin America, are expanding, increasing wealth.
• The reduction in defined-benefit pensions is forcing more people to handle their investment choices.
• Technological innovations, especially in artificial intelligence, are fostering a competitive landscape.

While I concur with most of the article's points, it overlooks a vital element: monetary policy.

Persisting monetary tightening Globally, central banks are battling inflation. The Federal Reserve has hiked rates from nearly 0% to 5.5% in the past 18 months, marking a significant tightening phase.

With the end of the zero-interest rate policy (ZIRP), new investment strategies will be necessary. Traditional assumptions are being challenged, demanding more advanced tools for portfolio optimization and constant vigilance for new opportunities.

Traditional wealth management firms might find this challenging as profit margins decrease, and client demands increase, particularly for clients with smaller net worths.

Evolve or fall behind In this changing environment, adopting technologies like AI is essential. Traditional methods can't match the efficiency and speed of AI, which is improving daily.

A recent CFP Board Consumer Sentiment Survey revealed that nearly one-third of investors trust AI-based financial advice without external validation. This trust increases to over half if a financial planner endorses the AI's suggestions.

The speed of these changes is extraordinary, signaling not just growth but a revolution in wealth management. Only those who integrate AI effectively will thrive in this new era.