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Wealth Management 2044
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Cyborgs and Robos and Hybrids, Oh My!

How artificial intelligence could reshape RIAs’ practices. By James Capps

By now, most registered investment advisors are familiar with automated advice platforms, or so-called robo advisors. While robo-advisory services have been a disruptive force, the machines haven’t “taken over” in the dystopian sense that some had originally feared. In fact, many RIAs have successfully leveraged new technology to grow and improve their practices.

In the same way that RIAs have used robo-advisory platforms as a complement to their core business of building relationships, artificial intelligence could provide similar benefits in the coming years.

What Is Artificial Intelligence?

In the most basic sense of the term, artificial intelligence involves abdicating portions of human intelligence to a computer. Artificial intelligence can take many forms, but in most cases the computer incorporates many different data points to come up with algorithmic decisions—providing humans with better outcomes than they could otherwise produce on their own. 

How Can Artificial Intelligence Benefit RIAs?

Far from falling prey to a robotic takeover, the investment world is increasingly moving toward a hybrid model that allows advisors to be enhanced by computers. Sometimes referred to as a “cyborg,” this potent combination can help provide clients with an optimal set of investment solutions.

To fully understand the potential ramifications of artificial intelligence on an RIA’s practice, consider one advisor with only a limited toolbox. Although the advisor’s clients all have different financial needs, the advisor can offer only a static set of cookie-cutter portfolios because, well, that’s what the advisor is comfortable doing.

Contrast that with a technology-enhanced practice with the ability to incorporate millions of variables, screen for risk and produce outcomes precisely tailored to a client’s financial needs. Imagine the value RIAs could add with that kind of computing firepower at their disposal. Now look around you. While it may seem other-worldly at the moment, successful RIAs are already incorporating AI into their practices. Soon, artificial intelligence could be as accessible as the smartphone in your pocket.

Navigating the Adoption Curve

The adoption of artificial intelligence will not happen all at once; it will be iterative. The early stages will likely involve using technology to automate routine tasks. As the process evolves, advisors will be able to incorporate more-complex functions like multivariable analysis—but only to the extent that they can manage these systems. It’s important that RIAs understand how to use AI without unwittingly undermining client financial goals and the trust clients place in advisors.

Fortunately, there’s no need to go it alone. As RIAs become more comfortable with artificial intelligence, they may increasingly make use of data scientists—tech-savvy quants that understand the power of big data and how it can be harnessed within the context of an advisor’s practice.

Advisors may face hurdles along the way, including regulatory barriers and product liability concerns. There will also be privacy considerations. But none of these potential stumbling blocks are insurmountable. Addressing potential minefields could even shore up the trust that RIAs and their clients place in artificial intelligence.

The AI Revolution Has Already Begun

In recent years, large technology firms have invested billions of dollars in artificial intelligence, which could pave the way for a wave of innovations that harness technology and make it more accessible for advisors. Beyond the obvious improvements to efficiency, artificial intelligence should ultimately increase client stickiness by producing superior investment outcomes.

The cyborgs are coming. It’s time to welcome them into the family.


 James Capps is Vice president, Technology—E*TRADE Advisor Services.

TAGS: Technology
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