Good News and Great News About AI

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Advances in artificial intelligence (AI) continue at a furious pace.

Here’s what my clients want to know:

  1. How will AI impact my business?
  2. Is AI an existential threat to the traditional financial advisor model?

Learn from the legal profession

We can learn a lot from the impact of AI on the legal profession, where it is having a massive effect.

An experiment in Brazil recently pitted an AI “team” against student advocates in a moot hearing.

An attorney and a data scientist coached the AI team (ChatGPT). Actors read the arguments generated by AI at the hearing.

While the students prevailed, the performance of the AI team was deemed “astonishing” based on its ability to present arguments in a “very reasoned and structured way.”

In another development on the legal front, LexisNexis, a leading provider of computerized legal research, announced the availability of Lexis+AI.

Using this remarkable tool, lawyers can request summaries of legal subjects and “generate winning briefs and quality contract clauses with remarkable speed, ease, and precision.”

Additional capabilities include analyzing briefs submitted by opposing counsel to find support for a legal argument, flagging weakness in the authorities cited, and even analyzing prior decisions by the judge assigned to a case to “pinpoint the types of arguments a certain judge typically finds most persuasive.” It can even identify the type of language the judge has previously found most compelling.

These capabilities are transformational for practicing lawyers.

How AI will impact your practice

An oft-cited Vanguard study found the best practices in wealth management added at least 3% annually to clients. It is a good starting place.

The primary drivers of value-added were asset allocation, selecting low-expense ratio investments, rebalancing, behavioral coaching, and spending strategy (withdrawal order).

Automating these tasks is far less daunting than what Lexis+AI has done in the legal field.

Here’s how AI could be used in these areas:

Asset allocation

An AI model could assess risk tolerance, investment horizon, financial goals and other constraints for a client. AI can then propose an asset allocation that optimizes for the highest expected return for a given level of risk. The model would use historical data, financial market models, and sophisticated machine learning algorithms.

Selecting low-expense ratio investments

AI can be programmed to automatically scan an extensive database of investments to identify those with low-expense ratios that meet a client's requirements.


Announcing Our New AI Consulting Service

Integrating artificial intelligence into your financial advisory practice can significantly enhance your services and boost your growth. However, successful AI implementation relies heavily on your AI consultant's understanding of your business.

We understand your business.

Our team of highly qualified consultants understands AI.

It’s a powerful combination.

Automated rebalancing is a straightforward task for AI. Once an initial asset allocation has been determined, AI can monitor the portfolio and execute trades to maintain the target allocation.

Behavioral coaching

AI can use historical data and psychological research to help guide client behavior. For example, if a client is frequently tempted to buy high and sell low, AI could provide timely warnings and education to help avoid common investing mistakes.

Spending strategy (withdrawal order)

AI can create an optimal withdrawal strategy that minimizes taxes and maximizes the portfolio's longevity. AI can consider factors like the type of account (IRA, 401k, taxable, etc.), the tax basis of investments and tax rates.

The good news

By automating these value-add functions, you will become more productive and cost-effective. You may even be able to reduce fees while increasing profits.

Freeing up the time you spend on these tasks has other benefits.

You can focus on branding, marketing and providing more service to your clients.

You may increase the number of clients you can handle.

You may reduce administrative staff or reassign them to higher-level tasks.

If you are using a TAMP that has embraced AI, the fees charged by the TAMP could be reduced.

Great news

There’s justifiable concern about the impact of AI on jobs. According to a study by Goldman Sachs, generative AI could “expose the equivalent of 300 million full-time jobs to automation.”

Yet, there’s a silver lining.

The same study examined historical precedents and found that automation creates new jobs and accounts for employment growth. The resulting increase in productivity has the potential to “… raise economic growth substantially...”

When I queried ChatGPT about the impact of automation on financial advisors, it said: “... while AI can automate many tasks and provide sophisticated analysis, it's important to note that AI should be viewed as a tool to assist and enhance the capabilities of financial advisors. The human touch, understanding of a client's unique circumstances, and personal judgment are irreplaceable.”

The future is bright.

Dan trains executives and employees in the lessons based on the research in his latest book, Ask: How to Relate to Anyone. His digital marketing firm makes extensive use of artificial intelligence to help advisors increase their SEO rankings and improve their marketing and allows advisors to integrate AI into their practices.

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