Wealth Management 4.0—also known as the fourth revolution, between human and machine—is upon us. In an era where personalisation and precision are paramount, the wealth management industry is embracing AI as a powerful ally and one that shouldn’t be underestimated.
This technology has been revolutionising other sectors for some years, but with new technological advancements, we’re seeing traditional wealth management transform and readily embrace the future.
The industry stands at a pivotal moment, with AI unlocking new opportunities for innovation and growth. In our new blog series, we’ll explore the impact of AI-driven wealth management in greater detail. Examining how client engagement, commercial models, and risk management are all set to evolve in the not-so-distant future.
The key challenges of AI in wealth management
While there’s no disputing that AI is proving useful in increasing the efficiency, accuracy, and level of service wealth managers are providing, it’s creating two novel challenges for the industry to consider:
- The nature of client interactions is changing: AI adoption is building momentum in all facets of wealth management. Wealth managers need to evolve how they engage with their clients to fit into the new world. AI can interact with clients in many guises—chat bot, tailored video content, even simple prompts and nudges—making mundane administrative requests easier than ever before. It’s transforming historically unengaging content such as portfolio valuation into interactive personalised media. AI interactions are on-demand rather than scheduled in advance. Through the eyes of the client, they are a much lower cost activity than human-to-human engagement. Wealth managers need to become more intentional with their client interactions, adding obvious value above and beyond the capabilities of AI.
- Rethink wealth management value proposition: In the 10+ years since the Retail Distribution Review (RDR), the wealth management industry has presented service—time spent directly with the client—as a major value proposition. Sometimes this has been to the detriment of the value of services—the 365-day activities for, and on behalf of, the client such as custody and investment management. The evolution to an AI-driven wealth management model likely means the value of ongoing service is adjusted down. But adjusting the value of existing services upward will prove difficult. So, wealth managers need to demonstrate the benefits of adding their expertise into an AI-first relationship at strategic moments to help achieve client objectives. This new value proposition approach will give wealth managers significantly more capacity. Blended with AI’s client interaction model, it presents an unparalleled potential for tech-forward wealth managers.
What are the key impacts of AI?
With change comes novel challenges, and implementing AI is no different. This means businesses must take action to ensure their workforce is on board and embracing the change and collaboratively working through the challenges. In doing so, workforces will be exposed to even more possibilities for innovation and success.
1. Clients
AI isn’t just the future of wealth management, it’s the here and now and clients are already reaping some of the great benefits from using it, including:
+ Round-the-clock access: Chatbots and virtual assistants are providing 24/7 access to support. Helping to improve client experience and responsiveness.
+ Simplification: AI tools can simplify complex financial data. Enabling clients to better understand investments.
But there are also risks associated:
Hyper-personalisation erodes ‘the house view’:
AI can help tailor wealth management products and services, with hyper-personalisation being offered as the perfect solution for greater engagement and higher levels of satisfaction. But wealth managers must be aware of the risks of following this strategy without the necessary controls.
Firms today typically build solutions for their clients from a heavily researched panel of investments and products. Portfolios are shaped by ‘house views’, clients’ objectives, risk attitudes, with tax wrappers and platforms selected for the necessary cost-considered benefits. This common practice leaves room for nuance, such as considering a client’s ethical preferences or existing investments. It delivers the clients what they need, with an adherence to what they want and gives the wealth manager a client with a strategy that fits within a framework that they can monitor. Taking hyper-personalisation to its most extreme position means each client solution is built from scratch, from the entire universe of available products and doesn’t promise to adhere to house view.
2. Colleagues
The introduction of widespread AI usage has created a rippling effect of change within workforces. It’s bringing opportunities for teams to optimise their time and conduct their lower-level tasks with more efficiency than ever. But AI can’t do it all—human interactions with wealth managers remain crucial for providing exceptional service levels. This is especially true for exchanges involving emotion and nuance, or where feedback from a previous experience is being provided.
AI can support wealth managers with:
+ Efficiency gains: AI automates routine tasks such as data entry, compliance checks and reporting. This means your team has more time to invest in other value-add work.
+ Enhanced decision support: AI provides predictive analytics and scenario modelling that can better support investment decisions.
+ Skill enhancement: Employees can focus on developing their relationship-building and complex problem-solving skills, especially since a humans’ emotional judgement excels over todays AI models.
AI is providing many opportunities for workforces to not only develop their skillset but also optimise their time better. By collaborating with the technology, wealth managers can leverage the strengths of AI to improve efficiency of tasks, while utilising the freed-up time to complete other, value-add tasks that will inevitably strengthen their client relationships.
3. Business valuations
With AI improving efficiency, there are question marks around how this technology will impact the value of businesses. For the wealth management industry, we’re expecting change, there are some undeniably positive impacts as AI rollout becomes more mainstream. But those changes will impact the commercial model and the value proposition.
+ Increased scalability: AI allows firms to serve more clients, boosting revenue potential.
+ Operational efficiency: Cost savings from automation and improved client retention can enhance profitability metrics.
As AI takes on tasks traditionally handled by wealth managers, there may be some pressure on fees. However, this could be balanced by efficiency gains, making it more cost-effective to serve clients and enabling managers to support a larger client base, which may positively influence business valuations.
4. Business risk
While heightened cybersecurity threats and evolving regulations around AI are certainly challenges wealth management firms will have to pay close attention to, the right AI can also positively impact business risk levels when adopted in the correct way. These benefits include:
+ Enhanced risk detection: AI can identify anomalies and potential fraud faster than traditional methods, enabling more time to mitigate or prevent threats from evolving.
+ Strengthened regulatory compliance: AI tools can monitor activity and flag compliance issues in real-time.
+ Better stress testing: AI models can simulate market scenarios to assess portfolio resilience.
The benefits of AI are extensive, but purposeful digitisation will remain key for wealth managers who are looking to introduce or enhance AI usage, while ensuring good value for money and exceptional service for their clients.
Over the next few months, we will be covering each of the four impacted areas (clients, colleagues, business valuation and business risk) more closely, so keep an eye on our blogs or connect with us on LinkedIn to follow the series.
Need support? Our wealth management team are experts in helping wealth managers navigate change. Get in touch today to find out how we can help you leverage the latest technology.
