Many advisor-specific AI products are on the market, including solutions for drafting meeting summaries, action plans and financial plans, choosing investments based on live market data, portfolio rebalancing, conducting tax return optimization, various compliance functions and finding errors in documents such as willsmetamorworks/iStockPhoto / Getty Images
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You would be hard-pressed to find a business use case for which artificial intelligence (AI) isn’t being applied currently. I have implemented and experimented with AI technology that generates blog posts, creates presentation slide decks, generates custom stock images, summarizes contracts, replies to e-mails, corrects my grammar, makes podcasts and creates videos. These general-use AI cases will become all the more ubiquitous over the coming year.
In addition, many advisor-specific AI products are on the market, including solutions for drafting meeting summaries, action plans and financial plans, choosing investments based on live market data, portfolio rebalancing, conducting tax return optimization, various compliance functions and finding errors in documents such as wills. Not only is AI doing all these things, but it’s also doing it faster and, in most cases, better than most humans can.
Just like before
We have seen technological revolutions come about before, generally resulting in a mass reallocation of labour resources within the economy. The advent of spreadsheet software put thousands of people who worked on huge paper spreadsheets with calculators and pencils out of a job but led to more people moving into accountancy, consulting and analysis of those numbers. Bank machines didn’t lead to fewer bank branches; they led to more branches with more diverse service offerings.
This concept is known as creative destruction and can be summed up as the phenomenon that while technology will reduce or eliminate the need for specific jobs, it also creates new types of work that couldn’t have existed before the technology existed. Case in point: One of the fastest-growing technology jobs is “prompt engineer.” This job is simply a name for someone who knows what to tell an AI to do to get it to do it. This job did not and could not have existed before ChatGPT existed.
That leads to the question of what financial services jobs are at risk of replacement in this new world. Between AI and various other automation technologies out there, repetitive and data-intensive technologies are most at risk. Areas such as back-office processing, administration and compliance will likely see our industry’s most considerable reductions in the need for human labour.
But what will the impact on advisors be? While there’s no one AI to replace us or our support staff functions entirely, there are countless ways to use AI to improve productivity. Like all technology, leveraging current and future AI technologies properly will let us do more with less and faster.
The four choices
Just like in any other industry, advisors should consider these four possible choices for what they will choose to do in the face of this technological evolution.
1. Embrace
Use the improved efficiency to compete on price. An advisor charging 1 per cent today who can net the same profit at 0.75 per cent by implementing various AI solutions is at a distinct advantage when competing for business and can use that advantage to grow versus their competition.
2. Expand
Increase the value proposition, expanding their costs simultaneously but still making the same profit due to the productivity gains. A business that does this has a distinct advantage over competitors because it provides more value than businesses at the same and lower price levels.
3. Implement
Bring in these solutions, expand profit margins and change nothing. While attractive to many for short-term profitability, this is a long-term losing proposition as it leaves one at a disadvantage to lower cost or higher service at the same price firms.
4. Ignore
Avoiding it simply leaves one with higher costs and lower profitability than its competitors. While not rationally desirable, momentum is a powerful force, and many will choose this route and allow their enterprise value to decline over time.
The best option is also the trend
While the first option of price competition may seem attractive to many, it requires a huge scale to win. After all, if all that matters is price, you will have to be the biggest to win that game. Just look at The Vanguard Group Inc. and BlackRock Inc. in the exchange-traded fund space.
Instead, the best option for advisors also happens to be the current long-term trend – expand. Provide more services and more value to a smaller number of households. Lean heavily into the behavioural finance and behavioural therapy worlds to understand your client and their needs better and more deeply.
Although you can’t be all things to all people, you can be many invaluable things to some and AI can be a powerful tool for getting everything that isn’t focused on the client out of the way.
Jason Pereira is a partner and senior financial consultant at Woodgate Financial Inc. in Toronto.
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