The latest artificial intelligence (AI) technologies are reshaping traditional wealth management practices and driving unparalleled efficiencies within the industry. Learn about the profound impact, potential risks, and exciting rewards of AI’s rise within the wealth segment.

The Rise of AI Technologies

As AI tools become increasingly accessible, they are being integrated into almost every facet of the wealth management industry, reshaping how advisors, broker-dealers and firms manage their operations and growth strategies. Craig Iskowitz, founder and CEO of technology consulting firm Ezra Group, doesn’t see this trend fading any time soon. “Morgan Stanley was one of the first to launch an internal AI assistant and I predict that in two to three years, every Fortune 500 company will have something similar.”

This surge in AI adoption is not just about keeping up with technological advancements, it’s also about fundamentally transforming how wealth management firms operate. AI-driven platforms are being utilized to analyze vast amounts of data more efficiently, allowing advisors to make more informed decisions quickly. For example, many firms are implementing AI-powered systems to streamline client onboarding processes, help optimize investment strategies and improve compliance monitoring. These systems not only enhance operational efficiency but provide a competitive edge by offering personalized services that meet the evolving needs of clients.

As AI continues to advance, its role in the industry will only grow — a reality advisors seem to embrace. As Francis Ryu, Director of Data Science, BNY reports, “According to Accenture, 90% of advisors said that they believe AI can help grow their book of business by more than 20%.”

Solving Real-World Problems

AI’s impact on the financial industry is most evident in the solutions that firms are implementing to solve real-world problems. According to Rashmi Badwe, Chief Operating Officer at TIAA Wealth Management, there are several key areas where she sees AI being used the most across the industry. “We're seeing four main types of use cases: content summarization, content generation, code generation, and knowledge management. We feel these use cases have the potential to help advisors be more productive and effective."

AI is transforming how firms handle customer interactions and manage internal processes. For example, tools like AI-driven chatbots are being deployed to handle routine client inquiries, allowing human advisors to focus on more complex issues. Additionally, AI is being leveraged for more challenging tasks, such as using natural language processing to scan and analyze client statements or financial documents, which can then be integrated into portfolio management systems. This level of automation not only speeds up processes but can also help reduce the risk of human error.

Another area where AI is making significant strides is in cybersecurity. Financial firms are increasingly using AI to detect and respond to threats in real-time. For example, AI-based phishing simulations are being employed to train employees to recognize and respond to sophisticated cyberattacks. As AI continues to evolve, its ability to solve real-world problems in the financial industry will only become more pronounced, driving growth and efficiency at firms of all sizes.

Beware of the Risks

While AI offers significant benefits, it also poses substantial risks. “We often assume that when AI generates an answer it must be right. And that's not true at all,” warns Michael Lewis, Chief Information Officer, BNY Pershing. “We’re very far from being able to get a computer to think like a human being.”

One of the most pressing concerns is the reliability of the data used to train AI systems. As Lewis states, “One example is ChatGPT — which is blocked at many firms due to data loss concerns and because the current version is actually based on data from the internet, and so it's not highly curated.” The implications of an AI model trained on potentially inaccurate or biased data are particularly severe in the financial industry, where incorrect data or predictions can lead to significant financial losses or regulatory issues.

To mitigate these risks, it’s crucial for firms to establish strong governance frameworks and ensure that human oversight is implemented. This includes regularly auditing AI systems, ensuring transparency in how AI outputs are utilized, and providing ongoing training for employees on the limitations and ethical considerations of AI. As the industry continues to grapple with these challenges, firms will need to strike a balance between leveraging AI for its benefits while safeguarding against its potential pitfalls.

What Does the Future Hold?

Generative AI and large language models (LLMs) are just the beginning. As AI technologies continue to advance, the possibilities for their application in wealth management are virtually limitless. “There are so many exciting possibilities,” says Mike Demissie, Head of Applied AI and Practice at BNY. “We owe it to ourselves to keep investing in learning.”

We can expect to see the development of AI tools that not only assist advisors but also empower clients to make more informed decisions. This could include AI-driven platforms that analyze market trends, predict future investment opportunities, or even manage portfolios autonomously based on client goals.

Looking ahead, the next wave of AI technologies will likely focus on applications tailored to the specific needs of an industry. For the financial industry, this may mean targeted AI models could be developed to enhance portfolio management, automate compliance tasks, or even provide real-time financial advice to clients. These advancements could lead to more personalized and efficient services, further blurring the line between human and machine capabilities.

As AI continues to reshape the wealth management landscape, its potential to drive growth and efficiency is immense. While embracing these advancements, firms must also address associated risks with robust governance and human oversight. The journey ahead promises exciting innovations, transforming both client services and internal operations in profound ways.

Want to learn more? Check out the Using AI to Solve Real Problems session from INSITE.