Unlock Your Access for the Data Webinar: Winning Data Teams: Getting Started and Scaling Your Team aired November 15, 2022

Over the next decade, artificial intelligence (AI) and other emerging technologies will have a tremendous impact on the human labor market. So much so that AI could render nearly half of all US occupations obsolete.

In fact, we can expect 65% of today’s college graduates to one day be working in jobs that do not exist today. Or more appropriately, haven’t been imagined yet. Today’s financial advisors are not only tasked with planning the financial future of their clients, but thinking about how future technology innovations will impact it.

A panel of experts at the Envestnet Advisor Summit, held recently in New Orleans, debated these trends and their effects on the wealth management industry.  The Crystal Ball: A Vision of the (Near) Future of Advice panel covered a wide range of topics including AI, virtual assistants, chatbots, medical longevity, and the wild, wild world of cryptocurrency and blockchain technology. They discussed how these advances will affect the nature of advice in the decades to come.

You’ve got a friend in AIrobo advisors artificial intelligence

AI-based systems have proved formidable opponents to both chess grandmasters and Jeopardy champions. However, their record has been mixed when going up against human financial advisors. Still, 40% of financial services firms believe AI will become mainstream in investment management within 3-5 years.

While the the Crystal Ball panelists agreed that the wealth management space would benefit from AI technology, Joseph Chalom, Product Head for Digital Wealth Solutions at BlackRock, argued that one drawback to AI integration would be a higher risk of negative outcomes. (See 9 Questions on Artificial Intelligence for Wealth Management)

Biases in any AI are arguably the result of biases in the human programmers.  Some have argued that banks must hire a diverse cross-section of employees to diversify the perspectives baked into the design of machine-learning systems:

Without diversity and inclusivity, a financial institution risks constructing AI models that are exposed to antiquated, prejudicial and stereotypical ideas that violate anti-discrimination and fair- lending laws — and embarrass the institution — when released on a wide scale.

AI technology considers deeply personal consumer data to decide which solutions to offer. In financial advice, taking chances on these decisions is not recommended. Consumer technology companies like Facebook or Amazon can risk the glitches common to adopting machine-learning.

Facebook and Amazon customers are also used to dealing with initial bugs in new features. Financial advisors, however, need to be cautious because a single negative interaction could doom their client relationship. 

The seemingly infinite world of big data appears most beneficial to financial advice. Kevin Hughes, EVP and Head of Enterprise Sales at MoneyGuidePro, suggested AI’s potentiaI lies in its ability to process and analyze consumer data in real-time. Thereby, enabling advisors to provide more proactive advice.

Facebook has had data sharing agreements with 60+ companies that produce consumer devices including Amazon, Apple and Samsung. When fed into AI-powered databases and analyzed, they can more accurately identify customer behavior and patterns.

This sharing has raised the hackles of privacy experts. Device makers were allowed to access Facebook’s data of their users’ friends, without explicit consent, even after the social media giant said it would not share such information.

Banks, Hughes observed, could be early adopters of AI because they already have an established, direct feed of their customers’ financial transactions. But banks are not as pliable when it comes to sharing customer data, he noted.

That said, if banks leveraged AI-based analytics to identify behavior patterns, customers could benefit from a more personalized banking experience — one where the service is specifically customized to them.

Molly Pandya, SVP of Product Management at Envestnet, recommended that advisors consider customer information details like client log-in habits to provide more predictive services. Fusing big data with AI could take this further, she noted, and the success of voice-based and chat-assisted virtual agents is proof.

While Amazon’s Alexa and Appe’s Siri help organize our daily lives, they are also able to recognize our preferences and habits. Chatbots and related virtual agents now have the ability to gauge our moods and emotions thanks to cameras and data-crunching algorithms.

Virtual agents are being trained to be more human-like. Robo-advisors like Betterment are an example in the wealth management space. It offers portfolio-building advice, goal-based saving, and most recently, charitable giving options.

At the end of 2Q 2018, Betterment was managing over 400,000 accounts and $11.8 billion in assets

The downside to robo-advising technology like Betterment’s is the creepiness factor, as Colby Payne, VP of Product Management at Envestnet Yodlee, put it. Recently, an Alexa device recorded a couple’s private conversation and unwittingly shared the file with one of their contacts. (See Wealthfront Revs Up With AI, But Is Still Running on Fumes)

Since most virtual assistants respond to all voices, the need for voice-authentication security is becoming paramount. Last year, Amazon announced voice recognition features for Alexa-powered speakers. Though the voice profile set-up will be limited to calling, messaging, Flash Briefings, shopping, and Amazon music.

Approaching AI and virtual agents with caution is required regardless of industry.  In the financial space, we must learn to “embrace it, not fight it”, in the words of Chalom. He claims if done right, AI could be “the greatest system for [advisors] accomplishing [their] mission over the next several years”.robo advisors artificial intelligence

To remain competitive in the future, Chalom predicts advisors will need to scale up to managing 1,000+ accounts. They will be desperate for solutions to help them serve future clients accustomed to 24/7 assistance. If properly trained, a prudent and smart virtual agent could step in. It could answer personalized queries, and maintain an ongoing dialogue with the client.

To dig further, we looked at Acorns, the budgeting app targeting Millennials. They have 3 million users, not all paying, but the model’s been very successful. Their user interface is basic, but that might not stop their rise. (See Why Acorns is the Only Roboadvisor That Could Be Worth $1 Billion)

Disclosing BlackRock’s investment in the app, Chalom said Acorns doesn’t constitute a robo-advisor threat to human advisors. It is instead an opportunity to understand how first time investors deal with their money — where do they invest and how often do they interact with the app?

The struggle here would be in recognizing the emotional context and client history that is essential to financial advice. Though AI-based systems might eventually be able to assess our moods, doing so with empathy is still a highly human trait.

Payne warned advisors against underestimating how quickly and deeply AI systems can obtain new knowledge. There are recorded instances of individuals interacting with human and AI systems without being told the difference. Most of the panel agreed they’d always like to know if they are talking to a human, or had suddenly signed up for a spot in the Matrix!

The panelists concurred the human advisor’s value-add is safe for now because they can take a level of responsibility that AI cannot match. Human advisors are still more effective at coaching clients to make better decisions and motivating them towards implementation.

Till death do us partrobo advisors artificial intelligence

Financial advice is heavily dependent on the client’s life circumstances. But what if clients live longer than expected? Sure, they could dip into their safety net, but they will need to change their plans due to an increased likelihood of outliving their savings.

According to the US Census Bureau, by 2050, nearly 500,000 people will be 100 years old or older, a 10x increase from today. Advances in medical technology could mean that by the time you are 95 years old, you could be healthier than when you were 65! 

What we’re facing is the likelihood of a generation of clients needing income to last them much, much longer than they planned. To Pandya, this requires incorporating a holistic picture of the client’s financial life while offering them advice. Advisors will need to be aware of their client’s health and its impact on their life expectancy.

With advances in genetic research, clients could regularly overcome formerly terminal medical conditions and live a longer life. The first people to live to 120 might have already been born. Extended life spans will likewise extend the advisor-client relationship by many decades, Payne said.  (See Future Shock: Ric Edelman Predicts The End of the World As We Know It)

The convergence of data and technology is an important factor. While silos exist within individual industries there is still significant cross-pollination when sharing or accessing consumer data.

The probability of financial, medical, and behavioral data merging into a singular identity is high, Pandya argued. Clients could also expect their advisors to know their entire history soon after they meet without them having to  share it manually.

Magical Internet Money (What is Cryptocurrency, Alex?)robo advisors artificial intelligence

It is impossible to ponder the possibilities of financial advice without addressing Bitcoin and other cryptocurrencies. There are passionate supporters on either side of the bitcoin aisle, but what is bitcoin exactly?

Most cryptocurrencies rely on blockchain technology to create a decentralized system for transactions with unique identities. It’s been described as the future of money, a revolution, disruptive, and a drug dealers dream.

Wall Street has accepted it and the NYSE is working on an online trading platform that would allow investors to buy bitcoin. Goldman Sachs is opening a bitcoin trading unit. JP Morgan just tested its debt issuance on their private launching which is called Quorum.

Hughes believes Bitcoin is “the next dot com bust”. Payne emphasized the transparency of data it offers, identifying the decentralized ledger technology as an interesting construct. Though he equates investing in Bitcoin to gambling, Chalom predicted blockchain could lead to more efficient digital enrollment and on-boarding for advice firms. That is, only if it succeeded in building the idea of a one, true identity, he added.

The lack of regulation and a decentralized system of capital decisions makes crypto an exciting alternative to traditional financial institutions. Combining cryptocurrency, blockchain technology, and consumer technology companies with billions of users could someday lead to them having digital currencies of their own.

We’ve already seen debt issuances on the blockchain, indicating security structures in the cryptocurrency world. There are systems being developed for the tokenizing (digitizing) of asset ownership. The distribution ledger could merge the world’s stock markets into a single, digital hub and effectively transform trading.

Crypto currently enjoys a cult appreciation. Advisors might need to view crypto differently if and when consumers begin trusting it more than banks.

Future Gazing

To conclude the panel, every panelist offered long range predictions for the future of finance. The inevitability of technology underlined each response.

While Payne foresaw a new kind of paradigm for financial advice, Pandya stuck to her prediction of a more convergent society. She sees a future where individuals always carry their own digital identities. That will “fundamentally change” our interactions and expectations, whether it’s seeing a doctor or a financial advisor.

Hughes believes people will miss Mom and Pop shopping experiences of personalized, chatty, relatable services. In a decade or two, people will nurture and pursue the desire to bring back the brick and mortar life.

Taking notes from the Industrial Revolution, Chalom observed an economic and tech boom arrived with auxiliary social changes. He wondered if this change would require a deeper safety net for planning. One that considers longevity and limited human employment.

On the flip side and quite like the Industrial Revolution, advanced technology could lead to a more fulfilling, richer life. Humans, as always, will determine how technology will transform life and industry.

If the silos holding consumer data in financial institutions were to ever fall, the wealth management space would change in an instant. The future of advice is not in the technology itself, but in how it will be leveraged to augment client satisfaction and financial growth.