Innovation in financial advice is sometimes matched by this sense of existential anxiety on the part of financial advisors who worry that new technology will negatively impact their jobs — or, at the very least, diminish their value. We've seen this hype cycle time and time again in the financial advisory space, where nascent technologies tend to rattle advisors by automating or modifying legacy processes and services they've historically managed.
While concerns about job security are understandable, advisors cannot let this concern overshadow the good that technology has brought to the consulting industry — especially the ways it enhances how advisors serve their clients. Technology has helped reduce advisor costs and overhead through efficiencies, including streamlining the client onboarding and portfolio creation process. This has fundamentally improved their ability to deliver a more personalized experience to clients – enhancing the lifetime value of training and guidance from human advisors.
Fast forward to present day, and the headline technology is generative artificial intelligence. This rapidly evolving technology has the promise and potential to change the ways we interact with almost everything, including financial advice. As GenAI spreads into technology solutions across the industry, advisors will be well-positioned to consider its beneficial benefits and accompanying risks, rather than viewing it as a fad or a threat.
Evaluating the potential of GenAI for advisors
There are many ways GenAI can provide value, but for advisors, the most notable are the ways the technology can help simplify and augment administrative tasks. Here are three benefits of timing measurement that GenAI can provide to advisors so they can prioritize the most valuable tasks to help their clients achieve their goals:
1. Content generation: GenAI can help create content for routine communications that advisors often spend time worrying about — helping deliver personalized communications like standard client check-ins, meeting reminders, and market updates.
2. Knowledge management: Another primary use case for GenAI for advisors is to collect and aggregate a lot of information quickly. For example, GenAI can summarize comparisons between products, helping advisors make informed decisions more quickly for their clients. Instead of spending hours analyzing forecasts, lengthy annual reports, and commentary to understand the latest market conditions or forecasts, advisors can use GenAI to instantly summarize key takeaways and translate those insights into value for clients. GenAI can also help turn previous client correspondence into easy-to-digest notes and prompts as advisors prepare for upcoming meetings.
3. Code generation: Just as GenAI can help with developing and drafting routine content, it can also generate markup for web pages, helping advisors load content on their websites for clients more quickly. For larger advisory firms, creating code with the help of GenAI can help advisors and their software developers accelerate custom technology solutions that help with client onboarding and back-office tasks like data analysis, trading, and operations. It can also support their ability to more seamlessly integrate internal CRM, trading and portfolio management systems.
Advanced technology has its risks
GenAI carries many risks if left unchecked, which reinforces the importance of having a human advisor in the loop. While the benefits of GenAI time measurement are attractive, advisors must have a framework in place to address the risks, both to protect their practices and to protect clients' private information.
One risk, for example, is jumping into a GenAI-focused partnership without conducting adequate due diligence. We have seen tremendous growth in GenAI technology, and new tools and platforms appear every day that, on the face of it, may seem like a perfect fit. It is important for consultants to establish guidelines for vetting potential partners and their technology, focusing on expertise, experience, customer portfolio, and information security procedures.
Another important thing that risk advisors should be wary of is any lack of awareness about the parameters of the GenAI platform they are working on. GenAI technology can be private, but some platforms are open to the public — like ChatGPT, for example — and advisors. Control measures should be considered to ensure that confidential, proprietary or customer information is not shared.
Finally, counselors must develop processes for detecting risks associated with hallucinations and biases. Hallucinations can occur when an AI is asked to provide an answer to a question it has not been trained to answer. Instead of not answering the question, the AI can hallucinate and provide an incorrect answer that seems convincing. In addition, GenAI tools can also suffer from racial and gender bias. For example, GenAI could recommend reducing investment risk tolerance for women regardless of their actual risk appetite. It is crucial that advisors understand the source data behind the AI they use, and have plans in place to check for unexpected hallucinations and biases that may perpetuate biases or stereotypes.
Using GenAI, advisors can more effectively manage their time — their rarest and most valuable asset — and devote more energy to creating personalized experiences and building deeper client relationships. Vanguard research shows that relationship-oriented services are a key differentiator in delivering value to clients, and this value increases when advisors build emotional trust. Advisors who welcome technology and integrate it wisely have the potential to deliver better outcomes for clients.
Lauren Wilkinson is a senior manager at Vanguard and CIO of the company's Financial Advisor Services (FAS) division.
more: Save too little? Spending too much? How to know if your financial fears are rational (or not).
Read also: A harsh awakening: Lack of financial literacy hurts young people What about older people?
