HOW AI MAKES FINANCIAL ADVICE MORE HUMAN

Briefing

You’ve probably heard a lot about AI recently. For most people, AI, artificial intelligence, has been somewhat of a vague buzzword-y tech trend - until a few weeks ago.  

If you haven’t heard of OpenAI’s ChatGPT, you probably live under a rock. It quickly became the fastest software/website to reach 1 million users, passing the mark in just 5 days. More importantly, Chat GPT represents a significant watershed moment in AI’s introduction to the general public - it’s the first time people have had access to a tool this powerful at this magnitude of scale.

This has us all thinking a lot about AI.

At Daizy, artificial intelligence is core to what we do. We’ve spent years developing an NLP (neuro-linguistic processor) that allows you to ask questions to an AI chatbot about investing data for stocks you own or are interested in. AI helps collect and curate our data and creates your experience on our app.

We’ve seen the power, and quite frankly the magic, of AI playout in front of our team’s and users’ eyes. But we also recognize that the implications of AI are frightening for many people.  

And no, we don’t mean frightening in the sci-fi, dystopic, “robots coming to life” way. We recognize here and now, that AI is going to change the landscape of most if not every industry, and that the changes are just starting.

AI - a two sided coin

AI has been cast as a threatening character in many industries, including the financial advice industry. Naturally, people’s first reaction to anything disruptive is often fear. How am I supposed to keep up with this technology? What are my peers and competitors doing to learn and develop their own skillsets around artificial intelligence. What if I lose my job to, essentially, a robot?  

And then you have the other side. The enthusiasts and innovators, often come off as overzealous about new technology, tending to overstate the impact and dramaticizing the potential effects. This creates a polarizing narrative, and today we’re going to attempt to strike some middleground.

We believe in two truths that lay the groundwork for this balanced perspective:  

1. Human behavior changes slowly, especially at scale

2. The ultimate goal of technology is to enable people to be better at the things only people can do.

So instead of telling the same old story from one of the two popular extreme perspectives, let’s talk about today, in our world: the world of investing information, tools, education, and advice. How can the financial advice industry and artificial intelligence work together to create better financial well-being for all of us?

Let’s put on our financial advisor hat  

As we discussed in our blog Bridging the Financial Advice Gap, in order for financial advisors to evolve with the demands of the new generations of financial consumers and to keep up with technology trends, there are no doubt changes that the industry needs to make.

The question no ones asking is: what if financial advisors want to make those changes?

A 2018 study by Kitces Research analyzed the day to day lives of working financial advisors across the United States, and compared it side by side with the expectations and motivations of financial advisors when choosing their careers. A few interesting insights emerge from their research.

The vast majority of financial advisors are most highly motivated by helping and serving people.

As this chart shows, the top “Strong” motivator for financial advisors, above income potential, work/life balance, stability, and prestige is “desire to help/serve others”.

But when you look at what advisors actually spend their day to day doing, the results are quite shocking. On average, across the industry, advisors spend their nearly half their time, 46%, doing “largely delegable, middle-office administrative tasks.” Most advisors are lucky if they can carve out 20% of their time to spend with their clients.

It’s clear that advisors, if given the opportunity, would spend more time with their clients and less time doing othery types of work. And there is huge potential for AI to solve that time problem.  

Even if advisors could implement AI in their day to day, would they?

On a hunch, you might think that advisors would be resistant to adopt new technologies because of resource costs and an obvious learning curve. However, there is some promising data from a 2020 Broadridge survey that demonstrates the opposite:

  • 77% of advisors report losing business due to inadequate technology
  • More than half of Millennial and Gen X financial advisors have considered leaving their current firms for others with better technology.
  • Over 80% want more automation tools to manage paperwork and keep up with compliance requirements so that they can spend more time with their clients.

Though this data isn’t AI specific, it demonstrates some positive inertia, especially amongst younger financial advisors, in favor of implementing integrating more technology in their operations.

What can AI actually do for financial advisors?

If in fact financial advisors want to spend their time more closely aligned with their motivations and the are demonstrating increasing willingness to adopt technologies like AI, the only remaining question is: where do they start?

As a thought experiment, we asked Chat GPT, “How can artificial intelligence help financial advisors?” This is what Chat GPT returned:

“AI can help financial advisors in a variety of ways, such as by providing them with tools to analyze and manage large amounts of data, automate routine tasks, and make more accurate predictions.

For example, AI can be used to analyze market trends, predict stock prices, and identify patterns in financial data that may indicate potential opportunities or risks. Additionally, AI can be used to create personalized investment portfolios for clients, based on their risk tolerance and financial goals.  

AI can also help financial advisors by providing them with real-time information and alerts, allowing them to quickly respond to changes in the market. Overall, AI can help financial advisors to improve their efficiency, accuracy and can help them to provide better services to their clients.”

Obviously, we have a ways to go and much more of this story is yet to play out. But, it’s clear that there is a clear role for AI in helping financial advisors - not replacing them. At Daizy, we want to play a part in enabling a future where people and technology work together to do what they do best, because we believe, in that world, we all stand to benefit.

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