Don’t fear the robots: the case for deploying AI in wealth management
Tobias Salinger – January 23, 2024

As big-name wealth management firms race to invest in and adopt artificial intelligence technology, financial advisors will become fast friends with the robots, according to experts.

The increasingly popular form of generative AI known as large language models (think of OpenAI’s ChatGPT bots as an example) can bring automation to many manual tasks for advisors and their teams, deliver greater scale in working with more customers at once and help wealth management firms identify leads for potential long-term client relationships. Rather than viewing AI as a threat, advisors and industry professionals ought to see the technology tools as “a historic opportunity” for the field, said Sindhu Joseph, CEO of AI wealthtech firm CogniCor.

“The tools are out there, and the trend is going toward an AI-enabled advisor,” Joseph said in an interview. “It becomes a real disadvantage for advisors not using AI because the others are going to supercharge, and you will be missing out if you are not using AI tools.”

Big announcements and implications

Earlier this month, Joseph’s firm launched its digital assistant for wealth management and insurance firms using OpenAI through Microsoft’s application programming interface. The pilot group of early adopters includes giant turnkey investment technology firm AssetMark, independent wealth management company Steward Partners Global Advisory and registered investment advisory firm Shufro Rose & Company.

That rollout followed an announcement at the beginning of the year that giant asset management firm Franklin Templeton and another AI wealthtech company, TIFIN, collaborated on a new chatbot service for 401(k) and other retirement plans. In 2022, Franklin Templeton invested on a minority basis in TIFIN, which has also drawn capital from JPMorgan Chase, Morningstar and Broadridge, among other sources.

Large language models enable a “conversational exchange” with clients and prospects and an “easier surfacing of different educational materials,” according to Deep Ratna Srivastav, Franklin Templeton’s head of AI and digital transformation.

“It changed things when LLMs came into the picture,” Ratna Srivastav said in an interview. “We’ve become so much more human in terms of connection.”

Those capabilities can reduce the workload for advisory practices, according to the burgeoning research on AI and wealth. The average advisor may be able to steer as much as 20% or 30% more of their time “toward growth-related tasks” thanks to generative AI, consulting firm McKinsey said in a report last week.

“While we do not see gen AI displacing the role of the adviser in the near future, it provides a once-in-a-generation opportunity for wealth managers to improve client experience and increase the productivity of advisers and other client-facing staff,”  the firm wrote in the report. “In the latter category, genAI is already being deployed to generate and synthesize meeting notes, draft financial plans and client briefs, support compliance reporting and serve as a virtual assistant.”

At least 22 of the U.S. wealth management firms surveyed last year by another research and consulting firm, Datos Insights, said they planned to spend more than $50 million on generative AI in the next couple of years, noted Wally Okby, a strategic advisor in the Datos wealth management practice.

“GenAI has meaningful potential impacts on virtually every element of a firm’s technology stack, but it plays a particularly important role in the customer relationship management space,” Okby said in an email. “Wealth managers are focusing on growth and enhancing customer and advisor experiences within the firms by maximizing the capabilities of their CRM systems. These upgrades are especially important as wealth managers consider how advisors can create customer engagement practices that fit the digitally driven future.”

How the new tools work

Franklin Templeton and TIFIN launched their AI tool, TIFIN @ Work, with that kind of future in mind. As a fund firm with more than $1.55 trillion in assets under management following its acquisition of Putnam Investments, Franklin Templeton’s retirement distribution group works with 401(k) sponsors of all sizes, according to Deepak Agrawal, the firm’s senior vice president of digital strategy and wealth management. 

The service will bring “financial education but also calls to action” around choosing among available employee benefits such as emergency savings accounts, comparing funds and investment strategies or arranging meetings for advisors with plan participants who may need more sophisticated guidance or a full wealth management client relationship, Agrawal said.

“Over the last several years, we have been constantly focused on, ‘How do we bring more value to DC advisors and employers,” he said. “It is not only about telling someone you have a problem, but actually helping them solve it right then and there.”

The system will give the 401(k) sponsor and its advisor a view into how much the plan participants are contributing and receiving in matching payments, automatically display what their accounts could look like at age 65 and answer questions like how a health savings account or flexible savings account works, said Marc McDonough, the chief operating officer and president of TIFIN @ Work. The tool doesn’t represent “a replacement for advisors” as much as “the opposite” of that, in terms of the scale and prospecting capability, he said.

“We can provide immediate solutions for them on some of the questions that are maybe more task-oriented, binary” for most of the employees,” McDonough said. “We can help identify people who might need the additional level of help and might be a good fit for that wealth manager. … We’re allowing them to focus on where they have expertise and then freeing them up with some of the other tools that we offer.”

TIFIN @ Work adds up to “a brilliant strategy that helps financial institutions earn revenue while indirectly prospecting for new private clients,” said Okby of Datos Insights.

“Diversifying revenue streams to better weather challenging market conditions is an economic imperative for wealth managers,” he said. “Given that attracting private client prospects earlier in their lives (i.e., before they become wealthy) is a strategic priority for wealth management firms, adding new acquisition channels — such as the workplace — can drive increased business to their advisory business over the medium-to-long term.”

CogniCor has developed three virtual assistants for wealth advisors themselves, corporate office employees and for investors directly. 

The one for advisors includes a host of tools around client meetings. For starters, it prompts the advisor to schedule the meetings. Then the assistant prepares the agenda using the client’s account information and an automatic transcript from the last one, provides potential talking points and questions to go over with the client and comes up with action items to carry out in the CRM after the session, Joseph said. The “advisor copilot” also comes with planning and client and advisor onboarding functions, she said.

“Some of the advisors when we speak to them, they stop us halfway through and they say, ‘I’m sold, just tell us how to deploy this,'” Joseph said. “We spoke to around 100-plus RIAs last year, and we are working with a lot of them in various stages of deployment and process. There is a lot more interest this year.”

‘Innovate or perish’

AI displays many more potential applications to wealth management in the future, according to Okby.

“A couple of areas that Datos Insights is paying close attention in 2024 to with respect to the integration of AI and wealth management are hyperautomation and hyperpersonalization,” he said. “Hyperautomation is essentially the end-to-end automation of business processes that were once manual or semiautomatic. This translates to AI-driven tools taking over tasks ranging from data analysis and risk assessment to portfolio selection, portfolio rebalancing and client communication. This capability is a game-changer for hyperpersonalization in wealth management.”

He and other experts are predicting that AI will disrupt many of the standard processes in wealth management around client data, transactions and overall management of the accounts. 

“In that whole value chain, there are a lot of inefficiencies; that’s what we as a combined industry struggle with,” Ratna Srivastav said. “This is a once-in-a-generation kind of opportunity that we have as an industry. You should see a big transformation in this whole value chain if you play it right.”

Advisors who adopt AI tools “will be operating at a different scale and efficiency level” more akin to the way that Amazon customers buy products with a single click online, Joseph said.

“The new group of investors will demand this experience,” she said. “It’s no longer an option for advisors. Either you innovate, or you perish, so that becomes the choice, unfortunately.”