Innovation in financial advising is sometimes met with this feeling of existential anxiety from financial advisors who fear that new technology will negatively affect their work or, at the very least, reduce its value. We have experienced this hype cycle repeatedly in financial advising, as fledgling technologies tend to create anxiety in advisors by automating or changing the legacy processes and services they historically managed.
While concerns about job security are understandable, advisors can’t let that discomfort overshadow the good that technology has brought to the consulting industry, especially how it has improved how advisors serve their clients. Technology has helped reduce advisors’ costs and overheads by providing efficiencies, including streamlining client onboarding and portfolio construction. Additionally, it has fundamentally improved their ability to deliver a more personalized experience to clients, solidifying the enduring value of coaching and guidance from human advisors.
Fast forward to today and the technology driving the headlines is generative artificial intelligence. This rapidly evolving technology has the promise and potential to change the way we interact with almost everything, including financial advice. As GenAI becomes prevalent in technology solutions across the industry, advisors would do well to consider its significant benefits and associated risks, rather than dismissing it as a fad or threat.
Evaluate the potential of GenAI for advisors
There are many ways GenAI can provide value, but for advisors, the most notable are the ways the technology can help streamline and augment administrative tasks. Here are three time-scale benefits that GenAI can offer advisors so they can prioritize more valuable tasks to help their clients achieve their goals:
1. Content Generation: GenAI can lend a hand with content generation for routine communications that advisors often spend time agonizing over, helping to deliver personalized communications such as standard client check-ins, meeting reminders and market updates.
2. Knowledge Management: Another of GenAI’s primary use cases for advisors is quickly synthesizing and distilling lots of information. For example, GenAI can summarize product comparisons, helping advisors make informed decisions more quickly for their clients. And instead of spending hours analyzing projections, lengthy annual reports and commentary to understand the latest market conditions or outlook, advisors can use GenAI to immediately summarize key takeaways and translate that information into value for clients. GenAI can also help distill previous correspondence with clients into more easily digestible notes and suggestions as advisors prepare for upcoming meetings.
3. Code generation: Just as GenAI can help develop and draft routine content, it can also generate web page coding, helping consultants load content onto their websites more quickly for clients. And for larger consultancies, GenAI-assisted code generation can help consultants and their software developers accelerate custom technology solutions that assist with client onboarding and back-office activities such as data analytics, trading and operations. It can also support their ability to more seamlessly integrate internal systems for CRM, trading and portfolio management.
Evolving technology has its risks
GenAI poses several risks if left unchecked, further reinforcing the importance of having a human advisor in the loop. While the time benefits of GenAI are attractive, advisors must have a framework to address the risks, both to protect their practice and to safeguard clients’ private information.
One risk, for example, is jumping into a GenAI-focused partnership without conducting sufficient due diligence. We’ve seen explosive growth in GenAI technology, and new tools and platforms are popping up every day that might, at first glance, seem like a good solution. It is critical that consultants develop guidelines for vetting potential partners and their technology, focusing on expertise, experience, clientele and information security measures.
Another important risk that consultants will have to guard against is the possible lack of awareness of the parameters of the GenAI platform in which they operate. GenAI technology may be private, but some platforms are open to the public – like ChatGPT, for example – and advisors should consider oversight measures to ensure that no confidential, proprietary or client information is shared.
Finally, counselors should develop processes to identify risks related to hallucinations and biases. Hallucinations can occur when the AI is asked to provide an answer to a question that it has not been trained to answer. Instead of not answering the question, the AI can hallucinate and provide an incorrect answer that seems convincing. Furthermore, GenAI tools can also suffer from racial and gender biases. For example, GenAI might recommend lower investment risk tolerance for women, regardless of their actual risk tolerance. It is critical that advisors understand the source of the data behind the AI they are using and have plans to check for hallucinations and unexpected biases that could perpetuate biases or stereotypes.
With GenAI, advisors can more effectively manage their time – their scarcest and most precious resource – and dedicate more energy to creating personalized experiences and building deeper relationships with clients. Vanguard research shows that relationship-oriented services are a key differentiator in providing value to clients, and that value increases as advisors establish emotional trust. Advisors who embrace technology and incorporate it judiciously have the potential to deliver better outcomes for clients.
Lauren Wilkinson is a Vanguard executive and chief information officer for the company’s Financial Advisor Services (FAS) division.
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