Trust — that's the big hurdle that advisors will need to overcome for broader AI adoption in the wealth management industry.
That was one of several takes from Michael Kitces about the state of AI in financial services. Kitces, chief planning nerd at Kitces.com, co-founder of the XY Planning Network and head of planning strategy at St. Louis-based Buckingham Wealth Partners, sat down for a fireside chat with industry consultant Suzanne Siracuse Thursday to open the second day of Financial Planning's ADVISE AI conference in Las Vegas.
He led off with a parallel about calling for an Uber and opening the car to find out there is no human driver.
"Do you still get in the car now?" Kitces asked. "The majority of Americans would not get in the car, and the number of people who don't trust it is actually on the rise.
"Most of us in the room grew up in this stranger-danger era. So to be clear, I'll get in the car with a stranger, just not a computer, is what most of us will say. I'll get in the car with the emotional, irrational, neurotic, crazy fellow human being that may or may not be insane, and pray that they did enough vetting on this driver, but I won't get in the car with the computer," Kitces said. "And I think it comes from what practically is kind of this unfair bias that we put against technology. We all understand humans are not perfect, but we expect the technology to be right."
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In wealth management, advisors are being asked to put faith in AI solutions with high percentages of reliability, but not infallibility. And that matters when dealing with decades-long relationships that involve entrusting an advisor with millions of dollars.
"I can't be wrong. The whole relationship is trust-based, and I can't lose the foundation of trust. So in a financial advisor context, if someone comes to me with AI and says, 'I made an amazing AI piece of technology that's 99% accurate' — cool. So I'm going to be sued once every year," Kitces said. "My goal is to not be sued once in 30 years, because the moment I do, that goes on my regulatory record in every disclosure document I have to present in front of every future client for the rest of my life."
Expanding on the trust factor, Kitces said advisors interested in adopting AI tools should be wary of big promises, especially those around technology that can identify trends and opportunities to beat the markets.
"If you have a software solution that sells this, I don't believe you," Kitces said. "If you have built AI software that can actually find novel and original investment patterns that can be invested and exploited in the marketplace, and you sell SaaS software as the way to monetize that, you are not a good business owner. No offense. You should be raising a hedge fund and seeing if you can beat Ray Dalio.
"If you can make technology that actually figures out novel investment opportunities that can be exploited, that's how you monetize it? You don't do it by selling software," Kitces said. "The only people you tell are people who will invest a billion dollars with you, and you don't tell anybody else. … You want to invest it as effectively and aggressively as you can and make a bajillion dollars. So to me, just the whole premise doesn't really work as a software solution."
In terms of solutions that work for advisors, Kitces focused on AI that can generate marketing ideas and those that can identify prospecting opportunities and turn otherwise cold prospects into warm ones.
"Anytime you have to deal with a blank page, AI is really good at making it unblank, right?" Kitces said. "Whether that's 'I need a social media headline, I need to write an article. I need to write an email to a client, post, meeting notes.' Follow-up is a version of this as well. It's so much easier to edit than it is to create, that when AI just gets you past the blank page into something that you need to edit, you tend to be greatly expedited."
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With prospects, AI offers a chance to help advisors make connections and understand if prospects are even viable clients.
"Here's my prospecting list, cross reference against marketing databases, LinkedIn, everybody else, and find some way to connect to commonalities. 'Oh, you're into golf? I'm into golf. I didn't realize we have the same alma mater.'" Kitces said. "Anything that lets me create some kind of connection. Anything that makes a cold connection warmer."
Kitces said advisors might also find opportunities to pre-screen prospects to ensure they're viable investors before spending time chasing them.
For tech solution providers, Kitces offered a bit of advice. Instead of focusing on "automating," they should be talking to advisors about "expediting."
"A lot of tech platforms are trying to automate things that we actually don't need fully automated. We just need it expedited," Kitces said. "You can't automate meeting prep. My brain still has to remember the people and the stuff. If you get me down to zero minutes of meeting prep, I'm going to make an idiot of myself at the meeting. But you could take my meeting prep down like 80%, and by getting me all the information faster, easier, more packaged, and maybe even prepping it in a useful format so that I can get up to speed faster and easier.
"Move away from 'automate' and think 'expedite.' I'll actually pay you more to do 80% of the solution than 100% of the solution, because if you do 100%, I've got to be afraid you did it wrong," Kitces said. "If you do 80%, you just saved me time. And I was going to have to spend some time on this anyway."
