Ever since the launch of Open AI in November 2022, the wealth management industry has been wondering what opportunities and/or threats large language models such as ChatGPT will have for its clients, advisors, and home office staff. The unprecedented numbers in which consumers have taken to ChatGPT from day one suggests that this technology is yet another information source available at no cost to consumers that has the potential to put financial advisers at a significant disadvantage; unless they are equipped with similar Generative AI support themselves. However, firms the world over are operating in a regulated environment that will not allow for rapid adoption of such cutting-edge technologies without substantial vetting, testing, and regulatory approval, which might take years.
Despite that, it is no surprise that many financial institutions and FinTech firms are exploring use cases for leveraging large language models. Firms owning large amounts of data and content are leading the way, such as BloombergGPT, Morningstar MO, etc. This is only the very first glimpse of what lies ahead for the industry.
A recent study conducted jointly between OpenAI and the University of Pennsylvania estimates that OpenAI will eventually be able to handle half of the tasks performed by a financial adviser. Given the increasing demands that financial advisers in the US face, and the decline in financial adviser numbers in many markets around the globe, leveraging large language models might well ease some of the capacity constraints faced at wealth management firms. Large language models might further increase service speed and quality, something that is necessary, as shown by a recent study published by Morningstar, which suggests that low-quality advice is the most common reason for clients to fire their adviser. Clearly, wealth management firms can leverage AI to reduce their advisers’ workload, increase capacity, and enhance the quality of advice delivered to their clients.
Personalisation to delight clients
Related to increasing advice quality in wealth management is the industry trend towards personalisation of the wealth management experience. The days of cookie-cutter advice delivery and investment management will soon be gone, and wealth management firms have to deliver a proposition that is tailored to each client. Tailoring the proposition requires data about each client’s behavioural and product preferences, an area many firms greatly struggle with. In addition to large language models requiring solid data underpinnings, this is the same for other emerging technologies, such as direct indexing, which is at the core of bringing mass customisation and personalisation to life. Wealth management firms have to adopt new data strategies and technologies to equip advisors and home office staff with the necessary platforms that will allow them to delight their clients.
While alternative investments in areas such as private markets are expected to be a core focus for the wealth management industry, it is surprising how many announcements in Q2 revolved around crypto. It is hard to say if these activities were started before the meltdown of this asset class and are now rolling into a market that has cooled significantly since its height or if we see an anti-cyclical motion that will put those firms that are active now ahead of the market once crypto is taking off again time will tell! One thing is certain, US-based advisors are skeptical - the recent Morningstar survey shows advisors believing there is more correction ahead, but the verdict is still out about the prospects of this non-correlated asset class.
Read the free-to-access analysis of our WTID for Q2 here. Get in touch with us if you’re interested in subscribing for full access: office@thewealthmosaic.com
