How AI is transforming the Financial Advisory Space

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Artificial Intelligence is built on the premise that software can be programmed to continuously learn and reprogram itself to perform human roles and adapt to every new instruction and command. Over the past few decades, AI has come a long way. While Siri, Alexa, and Google Assistant are not exactly sterling examples of the power of modern AI, their deployment on billions of connected devices underlines how much we now depend on AI-based solutions.

AI played a significant role in the digital transformation of the banking and finance sectors. From simple customer service bots to fraud protection, there has been a dramatic shift in how banking and finance companies use technology and AI to improve product portfolios and maintain security.

With the impending rise of AI-based robo advisory, the financial planning and advisory need to brace itself for a wave of disruption. However, there’s still time left before AI becomes a major threat to financial advisors. Implementation costs and lower reliability have hampered the migration to AI compared to the human advisor. Advisors should not be sitting idle, though. The finance industry has always welcomed technological change. While it might not be cost-effective just yet, AI is the way forward for financial advisory. If you want to stay relevant, you need to understand AI, its impact on advisory, and adapt your role accordingly. Read on to find out what you need to do.

Is your Financial Advisory Practice at Risk?
Yes and no. On the one hand, AI’s current role in the advisory space is somewhat limited because of the limitations of modern AI algorithms. In today’s world, there is still space for real human advisors. On the other hand, AI already provides a “good-enough” experience to DIY investors. You might lose sections of your client base, and prospective leads to entry-level AI-based advisory. What exactly are you up against here? Current AI solutions can easily digest a client’s entire financial history, determine historical and economic trends across the asset classes they focus on, and offer up-to-date, real-time market insights. AI solutions are available round-the-clock, making them far more accessible, too. This does not mean that it is going to make you redundant straight away.

While AI will likely take over simple planning functions and high-level advisory, this will most likely only make the advisors’ role more interpretive and specialized. There are still a few nuances in financial planning which AI cannot handle just yet. What is the most important nuance? The human touch. Financial advisors can understand a client’s financial goals through interpersonal connection much better than a program that shares a plan just based on number and data crunching.

Intelligence does not have to be Just Artificial!
The future of AI in advisory looks promising. But, at least in the here and now, it plays a complementary role to add value to the functions you perform as an independent financial advisor. Effective AI solutions can help you get work done faster and more efficiently. It would be best if you thought about leveraging AI opportunities instead of worrying about the threat. Here are some ways you can make AI work for you and your advisory practice

Better Data Analysis
Analyzing data is something modern AI solutions do well. AI solutions can look at thousands or millions of data points and dredge up actionable, data-driven insights that will help you advise your clients better and justify particular decisions.

AI can also help eliminate human error in the data collection and processing stage. No matter how diligent you are, manual data entry and analysis are prone to errors. AI solutions can prevent mistakes from skewing estimates, helping you create more accurate calculations.

AI solutions are excellent at detecting and analyzing patterns. This makes them well-suited to transaction analysis, helping you identify signs of fraud or suspicious activity in your client portfolios. Behavioral analysis can also provide you with insights into your clients’ spending patterns and risk appetites, helping you tailor recommendations to their individual preferences. Artificial intelligence can also help you draw up a credit score for potential clients, using alternate credit data, whether they already have a credit score in the system. AI is not about to steal your job: it will turn into the data analyst you wish you had always had!

Forecasting – What if you could investigate the future and prepare clients for future risks and opportunities? The AI-based predictive analysis does that and more. AI algorithms can make predictions based on your client’s financial activity and larger-scale economic trends and then suggest appropriate courses of action. Predictive analysis tools can help you make recommendations to your clients about viable future courses of action.

Reporting – Report building depends on effective data processing and analysis. AI offers a great way to provide clients with near real-time reporting based on templates and predetermined parameters. By leveraging AI to generate daily and weekly reports, you’ll be able to offer clients more frequent updates while actually saving time and effort.

24/7 Availability: You are an advisor, but you are a person too. You need to sleep, and you need personal time. Your AI partner does not, though. You can leverage AI solutions like chatbots to significantly increase client access to a wide range of your services at any time of the day or night.

This potential improves the client experience, too. Instead of waiting hours or days to reach you, clients can instantly reach your AI chatbot for basic queries and analysis.

AI is Here to Stay!
AI is a powerful tool that is already widely deployed in a wide range of finance sector use cases. Finance has, arguably, been ahead of the curve with a range of technology-based developments, including AI. With digital wallets, blockchain, online payment, and a smorgasbord of transaction data, the sector is a natural home for data-based innovation. As an independent financial advisor, this means that AI services and advances will likely come to you before they reach other industries and sectors. With the right approach and strategy, you can leverage that early-adopter advantage into your advisory practice and to your clients’ benefit.

AI innovation isn’t taking place in a vacuum, though. As a financial advisor, you need to understand how AI impacts all aspects of the finance sector. Let’s take a look:

❖ Fintech companies are leveraging AI to create new products, classes, and services. Many FinTech firms are pursuing this product-oriented approach to AI, offering clients new options in terms of advisory, analysis, forecasting, and more.
❖ AI is changing how financial insights are generated and utilized, which in turn propels new forms of business model innovation, reshapes competitive environments and workforces, engenders new risk dynamics, and poses novel challenges to firms and policymakers alike.
❖ AI will enhance productivity through automation, reduce human biases and errors caused by psychological factors, and improve the quality of information by spotting anomalies or longer-term trends that cannot be picked up by current reporting methods.
❖ Banks are currently using AI to improve customer service and engagement. Banks are automating their internal activities such a form-filling, record and receipt filing, and risk-assessment.
❖ AI start-ups aim at disrupting the traditional businesses of large banks. These start-ups aim to provide advanced new services to the banks to improve their current product and service offerings. Some of the primary areas in which these AI start-ups work include fraud detection, advisory, personal financial management, trading assistance, and execution.

Hey Siri! What is the Gist of this Blog Post?
AI is not only changing how organizations interact with policymakers and regulators; as sophisticated AI algorithms arise, right alongside an exponential growth in data volume, so do the associated risks. AI is often perceived as an unknown, and this creates space for user mistrust. The AI industry is still in its infancy: in the years to come, regulations will be integral to managing risks, constraining AI functions, and instilling trust in clients.

Moreover, AI is not without its issues. Financial organizations that leverage AI insights need to exercise prudence and care to avoid pitfalls. Potential risks include bias in input data, processes, and outcomes when profiling customers and scoring credit, as well as due diligence risks in the supply chain. Risk is amplified when insights are provided by third parties or when proprietary analytics are built on third-party data and platforms. There are also broader ethical concerns over the appropriateness of using big data in customer profiling and credit scoring.

As an advisor, what is your role in all of this? First and foremost, you are responsible to your client base to offer reliable and actionable insights and recommendations for their financial portfolio. You are responsible for the quality of advisory you provide to your clientele.

This means that you will need to be strategic about how you implement AI in your advisory process. The human touch is essential here. You need to personally vet and vouch for the quality of advisory, whatever the Big Data projections say. AIs are complex algorithms. They are not responsible for their output. And this is precisely why you, as an independent financial advisor and as a real person, will continue to matter. Your clients are your responsibility. Whatever tech innovations you leverage to improve their experience, you are accountable at the end of the day.

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