Is AI the Key to Scaling Your Practice?

As with other relationship-driven businesses, every financial advisor faces the challenge of balancing the need to continuously grow their practice with attending to existing clients. The problem has become even more acute as basic financial advice, such as asset allocation and general stock picking, has grown more commoditized. In turn, this has increased fee pressures and lowered the barrier of entry for the competition.

While many investors still see the need for human financial advice, advisors increasingly need to find new ways to add value to their client relationships and drive growth for their practices. Speaking on a panel at the Envestnet Advisor Summit, Joseph Chalom, Managing Director and Chief Operating Officer at BlackRock Digital Wealth Solutions said, "Today the average advisor is supporting 200 to 300 accounts or households. In order to be successful two to three years from now, you're going to need to support 1,000."

For most advisors, the solution to many of these problems lies in artificial intelligence (AI).

Key Takeaways

  • Investor expectations are shifting and many have become accustomed to having financial information easily accessible.
  • Large banks and investment firms have begun using virtual advice systems (such as chatbots) to give their clients quick access to basic information in real-time.
  • By using machine-learning tools and artificial intelligence, financial advisors can automate simple tasks like client onboarding and responding to commonly asked questions.
  • Instead, advisors can focus their time and energy on higher-value tasks that require strategic planning and decision-making.

AI and Shifting Expectations

While advisors find it increasingly difficult to differentiate themselves, client expectations are also changing. Newer, digital-native generations are unlikely to appreciate the model of financial advice that was popular with their parents.

Millennials, who stand to inherit $30 trillion in wealth over the coming decades, still believe that a human financial advisor presents a better return on investment (ROI) than a robo-advisor. But younger investors are also accustomed to having information available at their fingertips. "The next generation of investors isn't going to want to wait six months in order to have a planning meeting," said Chalom. "They won't wait for an email in order to view their reports."

Enter chatbots and other virtual advice systems. Large banks like UBS have already begun to roll out machines that respond to basic client queries in real-time, eliminating the need for interaction with client associates or scheduled update calls. Machine learning-driven client servicing has the power to "give clients what they want, when they want it," says James Liu, founder of Clearnomics, an economic insight platform. This enables advisors and teams to spend more time on the aspects of their job that contribute the most value.

The Importance of Trust

One of the most important metrics for a successful client relationship is trust, which advisors can build by investing their time into building and maintaining a client relationship. "The most frequent question we get is: 'Why are markets dropping?'" says Gaurav Chakravorty, co-founder of qplum, a now-closed asset management firm that focused on machine learning strategies. For a client, "not being able to ask the question is the scary part. And if you're unavailable at that time or your answer appears blasé, then [clients] will panic."

In finding ways to better allocate their time and automate simple tasks, such as client onboarding and fielding simple questions, advisors and their teams are better able to make clients feel valued, cared for, and respected. In other words, the rise of more advanced digital client servicing technologies, "may be the greatest assistance for you accomplishing your [client servicing] mission over the next several years," said Chalom.

Being Human

"AI is the thing that makes [chatbots] a pleasant experience," says Liu. "You can talk about things the way you want to talk about them," rather than in the programmatic way that has driven frustration with robotic operators in the past. "Now you can ask a normal question and the system, through AI, can figure exactly what you're talking about."

While the need for swift, digital communication is pronounced, the role of human advisors is not diminished. While robo-advisors have gained significant traction in recent years, they are still unable to provide the human touch that many wealthy and ultra-wealthy clients crave. Kevin Hughes, Chief Growth Officer at MoneyGuidePro, a financial planning software company, said, "I don't see AI managing empathy in the near future." While that might be true, equally compelling is the idea that AI may soon become powerful enough to determine when a human is needed to step in and provide empathy to a client.

The consulting firm McKinsey touched on the topic in a report discussing the digital transformation of wealth management: "It is not clear whether these [robo-advice] firms can move beyond simple investment solutions, capture non-millennial investors at scale, or replicate the trust and intimacy of a human advisor."

"Robos have been around for several years now and I think that the consensus is, that's not where the industry is going," says Liu. "We're moving to a hybrid approach, where the robo platform is another set of tools for the human advisor." At the same time, the widespread availability of increasingly sophisticated financial advice means that advisors do have to step up their game. "It's not going to replace the humans unless the humans aren't providing value," said Chalom.

The Bottom Line

While chatbots and other virtual technology have the potential to help advisors respond to client queries more quickly and effectively, the greater value of artificial intelligence lies in helping advisors be more proactive about client servicing. As client data becomes more ubiquitous, advisors will have the opportunity to make better predictions on the best strategies to use when providing client services.

With AI, advisors are able to improve both the "quality and the specificity of the advice that they give," says Liu. New tools, from those offered on Envestnet's platform to startups, allow advisors to better segment their clients and deliver more tailored communications and recommendations at a significantly larger scale than ever before. Said Hughes, "Advisors tell great stories to their clients, and AI has a way to improve that."

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  1. Morgan Stanley. "The $30 Trillion Challenge."

  2. UBS. "Making Employees 'Super Human.'"

  3. McKinsey & Company. "The Virtual Financial Advisor: Delivering Personalized Advice in the Digital Age," Page 4.

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