Automated Wealth Management: how AI is revolutionising personal finance

In the world of personal finance, many people find themselves navigating a path without a trusted guide. The resulting advice gap leaves many worried about making the right financial decisions. In this article, we'll discuss how financial AI is transforming personal finance and closing the advice gap by offering intelligent, automated wealth management.

In personal finance, the old adage "time is money" couldn't be truer. Juggling careers, family, and other responsibilities, can leave us with limited time and energy to devote to managing our finances effectively. 

Seeking the expertise of a financial advisor was the traditional approach to navigating the complex world of personal finance. However, many people find these services costly or out of reach, leaving them to make critical financial decisions on their own. The result is an ‘advice gap’ – a significant disparity between the financial guidance individuals need and the advice they get.

Recent advances in technology have enabled new solutions to this problem, in particular that of automating wealth management with the help of financial artificial intelligence (AI). 

HOLISTIC GUIDANCE 

The concept of automated wealth management isn't new. We've seen the rise of robo-advisors and budgeting apps that help manage specific aspects of our finances. These tools have undoubtedly made strides in simplifying money management, but haven't yet taken the next step to create a comprehensive solution that automates the entirety of our financial lives.

The next generation of wealthtech promises to be different. Advancements in technology and access to new data allows us to take that next step of providing holistic guidance. Automating our finances by combining new open banking data with behavioural analysis and models trained on expert financial management. 

THE RISE OF FINANCIAL AI

Enter financial AI, a technological revolution that promises to democratise wealth management. The application of AI to financial services is underpinned by three elements of innovation: machine learning (ML), non-traditional data, and automation. AI systems can combine all three elements or a subset of them. 

Early applications of AI allowed us to improve existing processes in finance such as prospect targeting, fraud detection and complaints handling. Large language models (LLMs) are improving the productivity of everyone from copy-writers to coders. 

Now, with the availability of Open Banking that allows permissioned access to our financial data from various accounts, AI-powered systems can provide tailored recommendations based on a comprehensive view of our financial position. 

Credit and investment expertise can be codified and leveraged to automate our entire financial life, making data-driven decisions in our best interest. Future saving and borrowing needs can be anticipated based on our goals and the right products readied ahead of time, making finance instant and effortless. 

This is not without its problems of course and there are currently potential barriers to the safe application of these technologies. LLMs suffer from hallucinations and biases inherent in the human data on which they are trained. Solving this must necessarily involve translating trustworthy design and development of AI technologies into effective practice.

BEHAVIOURAL BIAS

Understanding human behaviour is key to successful financial management. And whilst the statistical peculiarities of LLMs is important, perhaps of greater urgency is the need to overcome the existing errors we humans make in managing our money – errors that some apps actually reinforce rather than help avoid. 

Behavioural finance, a field of behavioural economics, can help us understand the psychological factors that influence financial decisions. By integrating these insights, the next generation of wealth management systems can offer automated strategies and nudges that align with good financial management. Ensuring that we stay on course and make rational choices, rather than follow suboptimal rules-of-thumb. 

For example, automated wealth management can help keep wealth fungible and allocated in a way that best achieves all our goals – rather than locking savings away in mental accounts for each goal. It can also adjust rates of saving (and borrowing) through life in line with our changing income capacity – rather than sticking to fixed savings rules. 

AUGMENTED INTELLIGENCE

Even in those circumstances where the complexity of client finances justifies the addition of human advice, financial AI can significantly increase advisor efficiency and augment their analysis.

The labour of assembling a financial fact-find, identifying client goals, and projecting financial scenarios can be largely removed from the advisor’s workload. AI-algorithms can similarly calculate core financial recommendations, taking into account these goals and financial data. Advisors can then focus on the highest-value aspects of their role, solving for the complexities of the client.

FINANCIAL AUTOPILOT

Finally we have the technology to build the world’s first financial autopilot. An AI-powered digital guide that can assemble our financial profile, create our financial plan, help us save, invest and manage debts, whilst reallocating our finances as life changes. Automated wealth management, driven by financial AI, promises to redefine our approach to money and transform personal finance for good.