AI and your practice: friend or foe?

By Kate Pleyer, Head of Advice at Graviton

We’ve long held the belief that the way to embrace Artificial Intelligence (AI) is to view the technology as “man and machine” working together, rather than in contest with each other. AI is by no means the first disruptor in the workplace – over the years personal computers, email and cellphones have all significantly changed the way we work and interact with clients.  Learning to use AI to your advantage can free up time to do work that is more enjoyable, and valuable to your business.  This applies equally to the world of the financial adviser. Let’s investigate further…

The practicalities of AI

By ‘outsourcing’ the support functions within your practice, i.e. admin, regulatory and compliance tasks, you’ll be freed up to spend more time doing what you do best – coaching and advising clients.  According to a recent article in the Journal of Financial Planning¹, a 2023 survey by Fortune and Deloitte found 80% of CEOs agree that creating efficiencies is a function of generative AI. However, only 37% said they were implementing the technology to some degree. This highlights the untapped opportunity of AI.

Given that AI does not yet have the capability to provide financial advice² in the same way that a qualified financial adviser can, the best way to use the technology right now is as a support function and to ask it specific questions and give it specific functions to perform. That way you, as the adviser, retain control of the process.

Getting started with AI

If you’re thinking of implementing AI in your practice, a good route to go is to focus on one thing at a time, for example, automating email templates, or looking at ways to communicate with clients (regular, general communications such as birthday wishes), or perhaps looking at how to personalise client communications. There are many ways that you’re probably already using AI without realising it, such as functions available in Adobe and Teams that can be leveraged even further

Some of the initial considerations in implementing AI in your practice could include:

• Separating the customer-facing from the non-customer-facing processes and using AI for some of the non-customer-facing functions, e.g. data analysis – on market trends and economic data – to help with decision-making.
• Making a note of some of the challenges you face in your business. Remember that AI is not always the best answer to every problem.
• Considering how you treat customer data and privacy. For now, it’s best not to use clients’ personal data as laws around AI are still being formulated.
• Investigating and taking advantage of any training that is available, such as that offered by The Financial Planning Institute (FPI). Ask questions on how the technology will affect your hiring and training, as well as legal requirements around client information.
• Lastly, don’t over-use AI, and also ensure that you retain your own communication style in your client communications so that they remain authentic.

The advantages of AI

For your business:

• As stated above, you’ll have more time to see clients face-to-face and to work with them on their long-term strategic plans.
• With AI helping on the administrative tasks, you will be freed up to service more clients. Regulatory costs have resulted in an ‘advice gap’ over the years, as investors with assets below a certain level weren’t able to access advice. AI, in the form of robo advice, can help close this gap. There are also apps available that can do the initial planning stages, such as assessing a client’s risk profile and goals.
• You’ll be better placed to advise younger generations who are looking to operate digitally and are not averse to first engaging with a chatbot or a robo adviser, and even possibly purchasing financial products online. Chatbots enable clients to interact and obtain updates and information on their portfolios 24/7.
• Much has been said about the generational wealth transfer taking place in the coming years as younger generations stand to inherit more than ever before. While this may not be as big a trend locally, the growth in the middle class increases the need for wealth and estate planning. Having the time to build relationships with the children as well as their parents, will serve your business well in the future.
• AI can assist with compliance, by analysing regulatory data and identifying potential non-compliance violations.

For your clients:

• Clients will benefit from the efficiencies in your business by having more face-to-face time with you, to discuss their financial plans.
• They’ll be able to access their portfolios at any time. However, they’ll still need their adviser to explain and coach them through the different phases of the plan.

Limitations of AI in Financial Services

As with all technology, AI does have certain limitations³, making it essential that AI tools are integrated into the advisory practice in a step-by-step manner so that the adviser is in control of the process throughout:

• Complex decision-making and judgment: AI systems, including advanced generative models like GPT-4, excel in processing large volumes of data and identifying patterns. However, they often struggle with complex decision-making that requires deep understanding and nuanced judgment. For instance, while AI can provide portfolio recommendations, it lacks the human touch necessary for comprehensive financial planning that considers a client’s unique circumstances and emotional factors​​.
• Ethical and legal considerations: The implementation of AI in financial services raises significant ethical and legal challenges. These include ensuring transparency in AI-driven decisions, maintaining data privacy, and adhering to regulatory standards. The “black box” nature of many AI models complicates the ability to provide transparent and explainable advice, which is crucial for maintaining trust and complying with fiduciary responsibilities​​.
• Customer preferences: Despite the technological advancements, many consumers still prefer human financial advisers over AI systems, especially for complex and high-stakes financial decisions. Studies have shown that clients value the trust, empathy, and personalised advice that human advisers provide, which AI currently cannot replicate fully​​.
• Regulatory compliance: The financial services industry is heavily regulated, and AI applications must comply with these regulations. This includes meeting requirements for data protection, ensuring fairness in automated decisions, and providing clear disclosures to clients. The regulatory landscape is continually evolving, which adds complexity to the implementation of AI in this sector​​ (including new legislation like COFI).

Our perspective

Advisers will need to develop new skills to work effectively with AI tools into the future – to ensure efficiency within their business and to stay ahead of the competition. Skills required will include understanding how AI systems generate recommendations, how to interpret these recommendations, and how to integrate AI insights into their broader advisory services.

Advisers will also need to become adept at using AI to augment their expertise, rather than relying on it solely​​. The human element will always be needed. As AI takes over more routine tasks within their business, advisers can focus on areas where human interaction is irreplaceable. This includes building relationships with clients, providing emotional support during market volatility, and offering personalised advice that considers the client’s life goals and values​​.

At Graviton, we believe that AI is the way of the future and currently, it helps us optimise our time and work more efficiently. Some functionalities we’ve been using for a while and there are others we aim to start using in the near future, such as drafting legal agreements, annual reviews and audits. Our belief is that AI takes away the burden of complexity when it comes to practice management. In addition, it frees up your time. We’re looking at ways to partner with you on this ensure a more enhanced experience for all.

Sources:

¹Andrus D. February 2024.  Soft Skills for the Augmented Adviser. Page 33. Journal of Financial Planning, Financial Planning Association.

²Caspi, I., Felber, S. S. & Gillis, T. B. 2023. Generative AI and the Future of Financial Advice Regulation. GenLaw Center.

³Hin Han Shum (2023) ‘Utilising Generative AI in Businesses: Risks and Best Practices’, Business Law International, 24(3), pp. 215-231. Available at: https://research.ebsco.com/linkprocessor/plink?id=3aeefbf9-f0c5-32e8-afa0-c2199a76d085 (Accessed:  3 July 2024).

Disclaimer: Graviton Financial Partners (Pty) Ltd is an authorised financial services provider in terms of the Financial Advisory and Intermediary Services Act,2002. While every effort has been made to ensure the reasonableness and accuracy of the information  contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any  representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability  for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance  upon the information. The information in this document has been recorded and arrived at by Graviton Financial Partners (Pty) Ltd (FSP) License No. 4210 in good faith and from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to its accuracy, completeness or correctness. The information is provided for information purposes only and should not be construed as rendering investment advice to clients.