Ahead of Wealth Management EDGE, Jason Pereira touches on how AI has developed in the industry.
In the latter part of 2022, a groundbreaking technology was introduced that will transform the way we work: generative AI. When ChatGPT became available to the public, it quickly evolved from being a mere curiosity to heralding a new era of technology where any type of digital media—text, audio, images, and video—can be created in a matter of moments. While various forms of AI and their application to the industry are nothing new, Generative AI and its practical applications to the industry certainly are.
Fast forward to today, approximately a year and a half later, and how much has changed in the financial advisory industry?
The answer is that many advisors would give is, well, nothing. That's not surprising for two reasons. The first is that it would take time for new AI-based startups to launch and develop their technology, and the second is that, like all technology, there is an adoption curve. While most advisors are likely yet to adopt any AI solutions, those of us in the innovator and early adoption end of the curve find new ways to apply this technology almost daily.
While that may sound to many like an exaggeration, consider the fact that there are AI solutions currently on the market for basically any generic business application you can name: Meeting transcription and summarization, composing emails, article/letter/blog post generation, spreadsheet design and manipulation, presentation generation, photo manipulation, and if an AI doesn't exist, your stated purpose, you can create a custom ChatGPT by uploading whatever content it needs to know and then providing it as a resource to whomever you like.
Even more impactful to this industry are the AI tools developed for this industry. AIs that can extract information from statements, wills, tax returns, insurance policies, you name it, to help you generate faster reports, proposals, workflows, and recommendations within minutes. AIs that will help you design, manage, and monitor portfolios. And yes, even AIs can compose a financial plan. None of this is fiction. All of this is on the market today and waiting to be leveraged by any advisor willing to look for ways to create more efficiency in their practices.
And just remember, we are only 18 months in.
Now, here is the thing about the oncoming AI revolution: it may be new, but in a way, it's the same old story.
If we compare advisory practices from 20 years ago to the practices of today, you will likely find that current practices manage more money on average with fewer support staff members on both a per household and AUM basis. The reason for this has been the digitization and automation over the last 20 years with the advent of cloud computing and the massive expansion of advisor-facing technologies. Rewind the clock 40 years, and you will find that the same trend continues with efficiencies owed to the advent of desktop computing. The reality is that AI is just the latest technological trend that will do precisely what the previous ones did to this industry: improve efficiency and reduce administrative headcount.
Now, the typical reaction to these tends is to conclude that it will lead to greater commodification through pricing pressure as many choose to pass along their savings as a means of competing and increasing their client counts substantially, pushing other advisors out of business.
History has taught us that this is not the case. In reality, advisors have used these productivity gains to compete not on price but on service offerings. Having evolved from professionals that provide access to investments to managing diversified portfolios to offering comprehensive financial planning.
While the business of the past was more generic and likely to be commoditized, the advisor of the present is more personal and diversified. That trend is expected to continue for two key reasons.
The first is that no surprise, business owners like to maintain their margins and, if they can, hold on to margin improvements.
The second is that we are all still bottlenecked by one piece of technology that has not changed: our 200,000-year-old minds. While our practices have become more efficient, our minds simply need help to handle an infinite number of client relationships. Psychologists estimate that we can only handle up to 150 relationships in our minds if we lose track of them. Subtract friends and family, and it's safe to say most advisors would top out at close to 100 households before they couldn't remember who is who.
Now, while the bottleneck caused by the grey matter between our ears is the limiting factor, it is also the solution to the question of what comes next.
The most meaningful body of knowledge to be developed in this industry in recent years is not about what we have all been trained on but what we haven't: the application of behavioral finance and financial therapy within our practices. The forming of deeper connections with clients to better understand what it is both drives them and holds them back from achieving the best version of their lives so that we can help them achieve it.
The advisor of the future is not one that does what they do today, only faster. No, the advisor of the future is the bridge between technology and humanity. The one that finds a way to find solutions that are both machine optimal and human optimal, and to guide the client on their journey of self-actualization.
In the end, the irony of the AI revolution in finance is that in a world where all of the time-consuming labour and preparation we do for clients is little more than a few button pushes, robots may make us all more human.
Jason Pereira is Senior Partner and Financial Planner at Woodgate Financial and will be talking at Wealth Management EDGE. Join Jason along with 2,000 attendees senior leaders and book your place now.
