The future of wealth management is now, and it’s AI

The world of wealth management is on the brink of a revolutionary transformation powered by AI. Driven by cutting-edge AI technology, the private banking and wealth management industry is beginning to deliver clients with unprecedented levels of personalized service, data-driven insights, and operational efficiency.

We’ve learned from our customers that providing digital, seamless experiences is more pressing than ever, as a new generation of digital savvy investors enters the market. Embracing these advancements is not just about keeping up with the times - it's about unlocking a new era of growth and competitive advantage.

However, meeting this need requires an understanding of the challenges faced by private banks and wealth management firms. In this article, we’ll focus particularly on how the daily lives and challenges of wealth advisors could be improved with AI.

In the ever-evolving world of wealth management, wealth advisors find themselves navigating a landscape riddled with challenges. These challenges impact not only their daily work but also affect advisor retention and the overall success of wealth management firms.

Here are some key issues advisors face:

1. Time constraints
   Wealth management is a demanding industry, often leading to high turnover. Juggling numerous clients with unique needs leaves limited time for crucial tasks like in-depth research, personalized communication, and strategic planning. All of which ultimately impact service quality. 
   
   According to Micheal Kitces, “the average advisor only spends 2.9 hours per year actually ‘investment managing’ the client’s portfolio.” Advisors allocate their time across a diverse range of activities, with varying degrees of automation potential from AI solutions. Here's an estimated breakdown of their time allocation and the potential time savings AI could bring to advisors
   
   

2. Information overload
   The sheer volume of financial data available today can be overwhelming. Markets generate a constant stream of information. Sifting through this deluge of data to extract meaningful insights and make informed decisions is a large task for any human advisor.
   
   

3. Regulatory demands
   Stringent regulatory frameworks are designed to protect investors and maintain market integrity. Compliance with these regulations requires significant time and resources, often diverting focus from core client-facing activities and contributing to advisor frustration.
   
   

4. Client expectations
   Today's clients are more informed and technologically savvy than ever before. They expect personalized, proactive advice, and seamless communication. Meeting these elevated expectations while maintaining profitability and adhering to regulations is a constant balancing act for wealth management firms. Morningstar recently reported that “quality of relationship with an advisor” was the second most common reason why investors fired the financial advisor.
   

A common factor underpinning many of the challenges advisors face is lack of time. 

Fortunately, increasing productivity (read: doing more in less time) is the main value proposition of AI tools like Microsoft’s OpenAI.

Wealth advisors play a crucial role in helping clients navigate complex financial landscapes. Yet, they often find themselves bogged down by time-consuming tasks, like report generation. AI is positioned to change this dynamic, by freeing up time to create more value for their clients.

40% improvement in highly skilled worker’s performance when using AI tools
- MIT Sloan Management School

AI-powered tools are not here to replace human advisors, but rather to empower them with the tools and insights needed to thrive in a digital age. By leveraging AI as a co-pilot, advisors can reshape the way wealth management firms operate, in both front-office client interactions and back-office operations.

Let's explore some key use cases in Wealth Management.

1. Craft personalized experiences
   Wealth Management firms can harness the power of Microsoft's OpenAI and similar technologies to analyze vast amounts of client data to deliver personalized financial advice, considering individual risk profiles, goals, and preferences.
   
   This goes beyond simple recommendations, AI can streamline the tailoring investment strategies, tax optimization, and even retirement planning to meet each client's unique needs. This enables advisors to create personalized recommendations and communication strategies that resonate deeply with each individual client.
   
   

2. Improved client engagement
   AI-powered virtual assistants and chatbots, like those leveraging OpenAI, offer instant support for basic inquiries and account information while freeing advisors for deeper client engagement.
   
   At the same time, AI-driven sentiment analysis of client communications provides valuable insights into their emotional needs, empowering advisors to deliver personalized and empathetic support. This also means that upsell opportunities and marketing campaigns can be launched to influence clients at the right time with tailored information. This aspect alone will make AI crucial for strengthening relationships and driving superior client experiences.
   
   

3. Unlocking proactive insights
   Imagine a system that constantly monitors the market and proactively alerts you to opportunities and risks. AI-driven models, trained on massive datasets, can support advisors in creating and managing investment portfolios by identifying patterns in market data, optimizing asset allocation, and rebalancing portfolios in real time. With all this data at hand, decision-making for wealth advisors will become quicker and more confident.
   
   

4. Risk management and compliance
   AI can help advisors identify, analyze and mitigate risks by monitoring portfolios for potential problems, such as excessive concentration or exposure to volatile assets. AI can also be used to automate compliance tasks, such as monitoring transactions for suspicious activity and supporting advisors with generating regulatory reports.
   
   

The MIT Sloan Management School reports that AI tools “can improve a worker’s performance by as much as 40% compared with workers who don’t use it.” McKinsey estimates that AI impact on productivity could add between $2.6 and to $4.4 trillion annually in value to the global economy. Research from Boston Consulting Group, McKinsey, and Accenture all point to the advantages of AI’s uses in wealth management.

The verdict is clear, the private banks and wealth management firms that embrace AI early on will gain a significant competitive advantage. They'll be able to deliver a superior client experience, increase the number of clients per advisor, maximize efficiency, and reduce costs.

The future of wealth management is already here, and it's powered by AI. By embracing this technology, firms can deliver a truly personalized and efficient experience that meets the evolving needs of their clients.

Understanding the value of AI is one thing, having your systems capable of implementing AI is another.

Download our whitepaper titled “The platform advantage: accelerating AI & innovation in wealth management” and learn how Backbase can help you realize the advantages of AI in Wealth Management.