Why Wealth Management Firms Are Racing to Implement AI Right Now

There’s a certain panic that’s settled over the wealth management industry with respect to AI. Not the cataclysmic, sky-is-falling worry. More of an internal acknowledgment that if things don’t get moving fast, they might be left behind. But it’s not merely industry propaganda or pure emotional urgency driving the need to adopt AI immediately. Instead, increasingly complicated and connected situations, client, operational, and competitive drivers, will lead wealth management to function differently than it ever has before.

Client Expectation Has Shifted

Here’s what’s happening: Clients who have wealth advisors also have other advisors for different avenues of their lives. They’re asking ChatGPT to draft their emails, receiving targeted Netflix recommendations for their next must-see movie, and getting a text halfway through their email asking if they need help from their bank’s virtual assistant. When they connect with their wealth advisor, they wonder why three days later, they still don’t have an answer to their inquiry about rebalancing their portfolio.

What’s more, that expectation gap is widening faster than anticipated. Clients don’t care that filling out a client’s suitableness determination report might take longer than AI’s instant response. What they know is that their bank handles customer service queries instantaneously through AI while their wealth advisor takes his time sifting through calculations that another program could whip out within minutes.

Patience is wearing thin. Clients are accustomed to instantaneous service, and there are only so many times they want to hear a professional say, “that’s just how long it takes” before they look elsewhere. In particular, younger clients set to inherit trillions in the next ten years have no patience for such ideals. They’re not necessarily asking for AI; they’re asking for speed. They’re asking for personalization.

The Economics Are Turning

Wealth management has always been an expensive endeavor for firms – and not in terms of asset allocation for client portfolios. Instead, with a 1:1 or 1:100 advisor/client ratio, that’s a lot of time and energy needed in an industry where compensation isn’t always aligned with expectations. Firms solve this by hiring more advisors; however, that’s now becoming an increasingly impossible undertaking.

First, there aren’t enough seasoned advisors thanks to the talent shortage in the financial services sector. Second, compensation expectations are higher than ever for trained professionals with seasoned experiences. Third, time-to-competency with new hires takes months to years until they’re worth it, and even longer for routine tasks (data entry, simple portfolio assessments, compliance paperwork, and pre-meeting assessments).

This is where AI begins to economically make sense. When firms utilize AI for wealth management solutions, they’re not replacing human advisors; they’re elevating the level each can perform independently. For example, if an advisor effectively manages 50 client relationships with necessary outreach and assessments, AI can enable that same advisor to extend her bandwidth to 75 or even 100, with AI handling the basic assessments and communications. Math isn’t subtle; it’s easy. That’s a 50%-100% increase in productivity without increasing fees.

But it’s even more important to note that compounding advantages exist for the firms implementing this first. If each advisor can work for effectively 1.5 clients each at new firms compared to the alternative, there’s more revenue available from client-facing hours or reinvested into firm profitability. Delaying adds average costs per client; most professionals are seeing their cost per client increase while their competitors’ costs are decreasing.

Regulatory Requirements Are Expanding

Everyone who’s ever been in wealth management knows compliance is essentially a full-time job within itself, even before adding regulatory bodies into the mix. The amount of paperwork, reporting requirements, and audit trails in place has exploded in the past decade. Every action performed with every client requires logging; every decision made must be substantiated; every recommendation penned needs a documented determination that it’s suitable for that client.

Humans can do it, advisors and compliance staff, but it’s mind-numbing work prone to errors and omissions. Mistake one documentation requirement, and there’s potential for fines or exposure; dedicate too much time to compliance, and there’s not enough time spent on value-added efforts.

AI systems are superb at systematic record-keeping and real-time assessments of what’s been logged, and what hasn’t. They can track down inquiries and raise compliance flags before issues arise, generating documentation needed by regulators, and everyone else, unanimously.

It creates a significant justification for implementing this technology, time savings, because, regardless of what anyone else thinks, compliance oversight isn’t shrinking any time soon.

If anything, regulatory scrutiny is increasing for wealth management firms, especially around suitability determinations and fee transparency issues. Playing without a solid compliance system is like playing with fire.

Personalization at Scale

There’s always been a tradeoff with wealth management systems: Do you provide highly customized services to a select few in return for not personalizing interaction at all levels? Or do you apply more comprehensive services toward larger audiences – and potentially lose out on providing the personal touch?

Those who tried to do both usually did neither well.

AI is breaking up that tradeoff in ways formerly believed impossible five years ago. Current systems dive into individualized client data, risk assessments, life expectancy benefits, desires, spending patterns – and create genuinely personalized insights/recommendations.

Not personalized as in: “Dear [First Name]”, personalized for its assessment based on various parameters relevant to the individual client.

How? Because AI can process tons of data in almost real-time assessments; it spots patterns in client spending that necessitates retirement fund adjustments; it can recognize tax-loss harvesting ideas before they slip away; it can draft an email to one client that instead would require an advisor spending $15 of his hourly fee writing an introductory email to say hello.

Those rushing to implement this aren’t doing so because it’s sexy technology; those who fail will lose out on competitive advantages as firms already boast of this particular service level – and clients notice.

Market Volatility Requires Greater Responsiveness

Markets don’t move like they used to; they’re high speed. Social media reports faster than traditional outlets. Market drivers change by the hour, and clients expect their advisors to spot trends and red flags to act accordingly faster than ever before.

The truth is: A human cannot assess downturns across diverse asset classes within multiple portfolios and reach out, even with communicating acknowledgment of doom days, within eight hours before lunchtime on top of everything else she has going on that day. An AI system can.

AI systems can flag what’s necessary for advisor attention from preliminary communications drafted upon receipt, the kind human-powered systems can’t implement without sacrificing sanity or time.

This means more during turbulent times – and turbulent times happen more often than ever expected. When markets aren’t performing well – that’s when clients need reassurance; that’s when they need information. The speedier the turnaround time, the better trust firms cultivate; when it’s day three by the time the firm finally gets back to its client? They’ve lost another one (or two).

The Technology Works Now

Finally, the technology works now.

Five years ago, AI systems weren’t up to par yet for systems meant for wealth management. They were still clunky, they didn’t produce consistent results, and they weren’t worth the implementation headache to ensure mediocre results on the backend.

Today? They’re intelligent and sophisticated in ways that genuinely justify wealth management operations. They plug into existing systems. They understand financial complexities without question, and they produce results trustworthy enough for advisors in return.

Those who passed two years ago because technology wasn’t ready are recognizing that time hasn’t been on anyone’s side. With ubiquitous solutions now available, and implementation deadlines looming, the question now isn’t whether it works but whether it can be implemented quickly enough so those without any AI solutions won’t fall further behind?

Where This Leaves Those Not Moving

Those who don’t move are stuck between a rock and a hard place. Costs are higher than those with implemented AI systems; turnaround times are slow; advisors are spending more time on their communication than they could otherwise eliminate-and most importantly, they’re losing traction of younger advisors meant to keep them innovative.

It doesn’t mean human advisors will go away, there remains an inherently human relationship between wealth management, but it does mean that these systems can supplement conversations needed, which provide speedier comprehensive analysis by trends almost logistically impossible without AI support, and make the best of both worlds.

AI makes that reality possible, and those addressing urgent needs are in the fast lane now while others are still waiting on side B of the stream line.