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Three Steps for Asset Managers to Succeed with AI and What Financial Advisors Can Learn from Them

Firms will have to be transparent, provide adequate guardrails and deliver impactful strategies to succeed because while AI won't replace humans it is not going away.

Artificial intelligence will play a crucial role in asset managers’ ability to deliver sustainable and profitable growth—but only if they get it right.

That’s a key message from our latest study on Reframing the Future of Asset Management, which provides a roadmap to the future for an industry facing exceptional challenges. Profound uncertainty and disruption, growing competition, increasingly complex demand and rapid cost inflation mean that even the largest firms are experiencing acute growth and profitability pressures.

EY’s latest modeling suggests many firms will become significantly less financially viable in the next five years and some may struggle to survive in their current form. In our base scenario, the industry faces a reduction of 3 to 5 percentage points in aggregate operating margins by 2027; and in our pessimistic scenario, the decline could be as severe as 13 to 15 percentage points.

Asset managers must take ambitious steps to increase their strategic resilience through greater focus and efficiency, and AI’s ability to generate savings and increase productivity make it an important tool. Examples of its potential to enhance technological and human capabilities include generating investment signals from huge volumes of unstructured data, powering the client contact centers of the future, and automating responses to regulatory enquiries.

How Can Asset Managers Get AI Right?

AI isn’t new to the investment world. What is new however is the speed with which it’s being improved and adopted. That process has been turbocharged by the appearance of generative AI large language models like ChatGPT, prompting both excitement and concern in equal measure.

Asset managers are finding that there is a big difference between experimenting with AI in niche applications, and scaling it up across a large, complex organization. The challenge for firms now is to implement AI at pace, while focusing on effective investment and ensuring that the technology does what they want it to.

To maximize AI’s full potential, asset managers need to get three things right:

  1. Embrace transparency: Openness is key to generating confidence in any transformative technology. Firms should actively maximize transparency around their use of AI, how they’re keeping data safe, and the benefits it provides. Education and explanation will be vital to building stakeholder trust, both internally and externally.
  2. Focus on differentiated strategies: AI use cases should be integrated into a top-down approach that starts with a truly distinctive strategic vision. Firms can then optimize ROI by prioritizing investment in the greatest areas of impact, focusing on proof of value rather than proof of concept. AI must serve asset management—it’s the means, not the end.
  3. Provide robust guardrails: A strong risk and governance infrastructure is key to leveraging the opportunities of AI and minimizing its risks. That includes a tailored oversight framework, intelligent risk management, strong operational processes, and high-quality staff training.

Without the right support, asset managers risk committing a lot of time and resources to AI without generating sustainable improvements. They could even see their use of AI halted altogether by regulators or shareholders, setting back their transformation goals and creating significant reputational damage.

Where Does That Leave Investment Advisors?

Advisors and wealth managers should follow the same three steps as asset managers if they’re making use of AI themselves, for example by piloting the use of generative AI to power interactive online client chatbots.

More importantly though advisors need to understand how asset managers are using AI so that, as intermediaries to end clients, they can generate confidence and trust in its benefits. That doesn’t mean that advisors need to become AI experts. But they do need to recognize what good practice looks like, and to identify firms that risk wasting their resources—or even creating a backlash from stakeholders—through inadequate AI implementation.

Advisors should ask asset managers about their approach to AI, and to seek evidence that firms are using it transparently, impactfully, and safely. The more advisors know, the readier they will be to fulfil their fiduciary responsibilities and reassure clients who may be uncertain about AI that the technology is being used to their benefit.

AI won’t replace humans, but it’s not going away either. Making the effort to get AI right from the start is the most effective way for firms to harness its capabilities for profitable growth and to ensure that investors will benefit from its transformative power for decades to come.

Mike Lee is the Global Leader of Wealth & Asset Management at EY.

The views reflected in this article are the author’s and do not necessarily reflect the views of the global EY organization or its member firms.

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