4 big AI trends that wealth managers should pay attention to

October 30, 2023 2:45 PM

As the financial services industry continues to come up with new ways to jam AI into the workflows of countless professionals, advisors are looking to leverage the buzzy tech to get more efficiency while leveling up their own knowledge of the subject.

According to a new survey released this month by wealthtech management consulting company F2 Strategy, wealth management firms remain highly interested in using AI to improve their businesses, and many have budding AI projects in the works.

And contrary to what the popularity of generative AI may suggest, firms are looking the closest at AI that can save time; reduce or eliminate "not in good order" process; and duplicate data entry.

"With all the attention it has received in the general population, ChatGPT has yet to fully take over the wealth management landscape," said the F2 study. "The industry is still waiting for that one game-changing solution. Meanwhile, firms across the country are exploring various forms of AI for a range of use cases that generate greater back-office and middle-office efficiency and secure better experiences and outcomes for clients."

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According to F2 Strategy, the focus of the research was to understand how midsize wealth management firms are currently using AI tools, what they wish they had the ability to do with AI and the challenges they are encountering.

The survey was conducted by F2 in August and September 2023. It includes responses from RIA, wealth management and asset management firms representing $6 trillion in assets.

Scroll down to see what the firm has highlighted as the four big AI trends that the industry should be keeping an eye on as we head into the new year, along with some advice to tackle each topic.

About half of all wealth management firms are cooking up an AI idea

According to the F2 survey, 51% of firms say they are currently working on AI projects. Focus areas include predictive analytics, optical character recognition, workflow automation, natural language processes and chatbots.

Firms say they are keen to explore how AI can be applied to enhance various aspects of their business, including client experience, efficiency and growth. Some firms report they have found significant time savings with AI tools. For example, they spend 90% less time on transcription when using AI to help.

But F2 warns that AI effectiveness hinges on data quality. "While AI tools mature, look for gaps to fill around your data processes and management so that you're ready when it comes time to implement."

Firms want more AI education

Many respondents say there is a lot to learn about AI, and expressed a strong desire to learn more about AI's real-world applications. In a self-assessment, 62% of wealth management firms rated their knowledge of AI a 5 out of 10 or lower.

Specifically, wealth management firms want to see case studies showcasing successful AI implementations and want to understand the possibilities and risks of AI technology. Many also want to understand the role regulatory agencies will play in its use.

F2 says a good way to start getting better is to appoint an internal team member to be an AI champion. This person would be responsible for understanding what AI capabilities and regulations exist, and advocating for the AI solutions that address your business requirements.

Vendor collaboration is key

In line with how most of the wealth management industry approaches technology, 74% of wealth managers expect to move their AI plans forward by working closely with vendors. Many respondents report participating in beta test groups with vendors that are developing new ideas to provide feedback.

Only 18% are going hands-off by saying they will rely completely on vendor capabilities, and 8% say they will develop internal firm capabilities.

As advisors and wealthtech providers collaborate, F2 urges planners to show vendors the problem areas they think AI could address and challenge them to come up with solutions together.

The future of AI in wealth management

Much of what the wealth management industry wants to use AI for tomorrow is similar to how they would like to leverage it today. Things like workflow automation, chatbots and natural language processes are included in the survey's list of top current AI projects, and the top desired AI projects.

But wealth management firms recognize opportunity with AI, particularly generative AI, believing they can achieve additional benefits as AI functionality matures and becomes available.

While excited about AI's potential, firms indicate they are proceeding with caution, citing big concerns with maintaining high levels of data security and complying with looming regulatory requirements.

Budget constraints, issues with data quality and competing priorities also factor into their decisions to invest in AI technology.

To get it right, F2 says to start small.

"Understand your potential use cases and assess where AI can help your firm streamline functions to realize cost or time-saving efficiencies," F2 writes. "A small scale (proof of concept) with a defined goal will help narrow the scope and data required, allowing you to show the potential AI can deliver."