Artificial intelligence and wealth management: are they compatible?

There is nary an industry where artificial intelligence (AI) is not a matter of conversation recently, wealth management included.

“It’s a topic that’s everywhere and is affecting every industry,” said Dana Vosburgh, a certified financial planner and managing director of advisory services at Manning & Napier, Inc. “It’s so new and it’s happening so fast.”

Vosburgh has been fielding many questions from clients about AI recently — some clients are concerned and some are curious. That act in itself — reaching out to one’s financial planner for answers or reassurance — says a lot about AI itself.

“There’s a lot on the line when you’re an investor,” Vosburgh said. “There’s importance in the human relationship. Trust is really, really important in this industry.”

Morgan Stanley Wealth Management’s quarterly individual investor pulse survey released in May 2023 underscores what Vosburgh is seeing first-hand: 82% of investors believe AI will never replace human guidance and 88% agree that the human-to-human financial advisor relationship is extremely important.

However, the same survey found that 74% of investors believe AI will help their financial advisors better serve them and 63% would be interested in working with a financial advisor that uses AI as opposed to one that does not.

Vosburgh agrees that there are ways in which AI can be useful for financial advisors, such as increasing and improving day-to-day operational efficiencies and gathering information for a historical perspective on financial events and trends (such as interest rates).

The Financial Industry Regulatory Authority (FINRA) has identified the three major areas where advisors are evaluating or using AI in the securities industry as:

• Communications with customers (virtual assistants, outreach targeting, emails, etc.)
• Investment processes (portfolio management and trading, customized research, holistic customer profiles, etc.)
• Operational functions (credit risk management, cybersecurity, automation of paper-based processing, etc.).

FINRA cautions that while these areas of use may offer several potential benefits, they involve potential challenges, costs, and regulatory implications as well. Additionally, they do not relieve firms using them of compliance with all applicable securities laws, rules, and regulations.

At Courier Capital, LLC, an affiliate of Five Star Bank, leaders are taking their time looking into the investment and research side of AI.

They currently only use AI for operational assistance like automating some back-office tasks, according to Thomas Hanlon, a certified financial planner, chartered financial analyst, and president of Courier Capital, which recently merged with HNP Capital, LLC.

“One area AI might help in is the research area and the gathering and processing of large amounts of data,” said Hanlon, who likens AI to a tool, but cautions against it ever being the only tool in the box when it comes to wealth management.

Rebecca Westervelt is an accredited investment fiduciary and the senior managing director and head of retirement services for Courier Capital.

She also sees some potential value for AI in wealth management from an operational standpoint, but there are also major deficits in terms of the relationship component that, in the opinion of all professionals interviewed for this piece, is vital in wealth management.

“We are with a client through everything,” Westervelt said. “It’s a relationship. AI can’t replace the face-to-face interaction with clients and being there for them in good times and bad.”

Westervelt also noted that while the onus of asking questions is on the user in AI, when it comes to a typical wealth management relationship, it’s as much the advisor’s role to ask questions as the clients.

“We know how to ask the right questions to provide highly personalized services,” she said.

In terms of how AI may be able to benefit investors, John Howe-Wemett, a certified financial planner and vice president – wealth management advisor for Generation Capital Management, points to accessibility.

“AI can potentially lower the barriers to financial planning information,” Howe-Wemett said. “People who need our help as Certified Financial Planners the most are often the people who least afford it. To the extent AI can provide a free or lower cost option for people, it can be useful.”

Howe-Wemett warned, though, that caveats abound.

“With the early state AI is in right now you need to know what questions to ask and that can be difficult for people without a financial vocabulary,” said Howe-Wemett, who notes the answers from chatbots like ChatGPT are not always appropriate or accurate. “The level of information still isn’t where it needs to be.”

Howe-Wemett saw this first-hand recently while helping one of his students at St. John Fisher University’s School of Business, where he is an adjunct professor. His student chose the topic of AI in wealth management for his honors project and developed questions related to the subject to ask ChatGPT. The student then presented ChatGPT’s answers to a panel of financial planners and asked them to rate the quality of the answers.

Most of the answers were average in terms of information provided, but one – related to the difference between a Roth and a traditional IRA – was factually incorrect.

“If someone had taken the advice it could have caused real financial harm,” said Howe-Wemett who says this example begs the question: “Who is watching AI? There’s no FINRA watching ChatGPT to see what they recommend.”

Howe-Wemett believes that if the information AI provides is accurate it can also be useful for a small number of investors who, for personal reasons, shy away from human interaction. For most investors, though, AI is not an appropriate substitute for a personal relationship with one’s financial planner.

“With AI there is very little to provide the human connection in financial planning,” Howe-Wemett said. “I’ve gone to funerals for clients — AI is never going to go to a funeral.”