How Can AI Help Financial Advisors?

by Rebecca Rosenberg | As seen on investopedia.com…

Advisors can provide better service when they off-load time-consuming tasks.

The growth of artificial intelligence (AI) in 2023 is altering how most industries function on a daily basis. And the financial industry is no exception. According to a 2021 KPMG survey of financial services leaders, 84% said AI is “moderately to fully functional” at their organization.1 Plus, AI is poised to save banks and financial institutions hundreds of billions of dollars in many different ways.

The tool has become an essential part of technology and workflows within banking, insurance, and financial services, ultimately changing the way products and services are offered. For financial advisors, AI provides deep learning and prediction to improve decision making and streamline operations. Learn how AI can help financial advisors grow and elevate their businesses.

KEY TAKEAWAYS

  • AI can help financial advisors with a variety of day-to-day tasks including client service, data analysis, portfolio optimization, risk assessment, and trend prediction.
  • SigFig, Datamaran, and PulseFolio are examples of artificial intelligence tools advisors can use to assist with financial services.
  • Financial brands like Capital One, Morgan Stanley, and Wealthfront are already using AI for customer service, portfolio analysis, and customized recommendations.
  • Governmental AI regulations may be on the horizon for financial services and other industries, as the U.S. and E.U. are discussing policies, as of November 2023.

How AI Can Help Financial Advisors

Here are nine ways financial advisors and registered investment advisors (RIAs) can leverage AI-powered tools to save time, offer better services, and streamline operations.

1. Identify Trends and Patterns

Predictive analysis uses historical data, machine learning, artificial intelligence, and statistical models to forecast future outcomes. Through this process, AI can find patterns and trends that humans may not be able to see. For example, it could identify correlations between securities and market indicators that you could then share with your clients, giving them a leg up in strategy.

AI can also monitor keywords on an ongoing basis to spot trending topics online. This means advisors can provide more informed and up-to-date investment advice.

2. Data Analysis

AI models can process information exponentially faster than humans and with a precise level of accuracy. By analyzing enormous volumes of data in real-time—including data on customer behaviors, earnings transcripts, and trading patterns—AI gives financial advisors useful insights that can propel customer-specific portfolio strategy and planning.

Note

Sentiment analysis is another type of useful data analysis. AI and large language models (LLMs) can scan texts such as chats and social media to identify sentiment or prevailing emotional opinion.2

3. Client Service

AI can help financial firms manage client relationships and provide on-demand, 24-hour service. For example, chatbots on websites, social media, or messaging platforms can answer frequently asked questions and handle routine tasks like appointment scheduling or arranging automatic payments.

As early as 2017, Capital One was using a text-based AI customer assistant called Eno. Eno analyzes data to generate insights and anticipate customer needs, proactively providing client services like fraud alerts and recommendations to manage spending.34

4. Compliance

In a highly regulated industry, financials advisors should be cautious with large language models (LLM) like ChatGPT. They need to double check all advice and answers from the platform for accuracy, and avoid feeding private or proprietary information to the LLM.

However, AI can also make it easier for financial advisors to ensure compliance. AI acts as a security system against regulatory violations by monitoring activities, transactions, and communications 24/7, and then flagging any potential issues. As with most cases in which AI is used, though, each of the potential issues should be reviewed by a human for accuracy.

5. Portfolio Optimization

Automated investment platforms like Wealthfront and Betterment have been using AI for years to build customized investment portfolios and recommendations. Their algorithms use the customer’s risk assessment scores to pick the appropriate mix of cash and exchange-traded funds (ETFs) in a portfolio.5

Other AI-powered portfolio optimization tools use unique inputs related to customer needs and goals to create an optimal blend of assets. And with portfolio review tools, you can automatically scan and analyze existing portfolios. Within minutes, the AI will assess the overall strategy, identify strengths and weaknesses, and recommend improvements that an advisor may want to adopt for their client.

6. Risk Management

Financial advisors can also use AI tools to improve risk management for their clients, helping them more quickly identify areas of risk in a portfolio. With this technology, a financial advisor can more efficiently help their clients align their portfolio with their risk tolerance levels and reduce losses. By comparing a client’s goals with their risk in their portfolio holdings, AI technology can identify recommended changes more quickly.

Note

For financial services firms that offer products and services to consumers, many AI tools use machine learning and predictive models to assess a borrower. The result is faster decisions about loan and credit applications.6

7. Personalized Client Outreach

Effective client outreach takes time. AI can help financial advisors provide personalized messages based on individual customer data like past interactions, preferences, demographics, and financial goals. This can save valuable time, increase customer connections, and be especially helpful for smaller firms, where there may not be a marketing department.

For example, Morgan Stanley has been testing an OpenAI-powered chatbot to help with client outreach and personalization. The bot can draft summaries of advisor-client calls, send follow-up emails, and schedule follow-up appointments. This helps advisors build stronger client relationships and frees up their time for advice and strategy.7 For this specific service, though, it is especially important for an individual to review the outreach ahead of the send just in case errors slip through, which can happen.

8. Creating Infographics

The popular freemium design tool Canva now includes AI integrations like an online text-to-image generator.8 Or, Canva’s Magic Design tool that lets you input media and data, choose a few style preferences, and watch as it dynamically generates graphics.9

Another option is HighchartsGPT, which can create interactive, no-code infographics with simple prompts. This API lets you create charts in different languages, copy and paste data from Excel and have it visualized, pick your desired chart style, and then adjust as necessary.10

If you’re not using internal research, you can use an AI research tool like Perplexity AI to find statistics (with sources) to generate your infographic.11

When creating graphics, be sure to fact-check the source for veracity, authority, and relevancy. GPT-4 “was trained using publicly available data (such as internet data)” but it’s not clear how recent that data is, according to OpenAI.12 Also, LLMs are prone to inventing facts, so it’s recommended to always have human review.

9. Creating Blog Content

When ChatGPT was released to the public in November 2022, people were wowed by the bot’s ability to spit out lengthy texts in seconds, based on a simple prompt.13 However, some experts suggest using it to brainstorm ideas and help with editing, rather than writing an entire piece from scratch, depending on your goal.

Hypotenuse AI is a useful platform for creating full-length blog posts. You work with the tool to create and edit potential article titles, build an outline, add talking points, see sources, and generate the article. It’s interactive at every step, which can produce better results than simply inputting commands like “write me a blog post about [topic].”14

AI Tools for Financial Advisors

Financial advisors, banks, and RIA firms can use general AI tools to their benefit in areas like operations, marketing, and HR. Some popular AI-driven marketing platforms include Salesforce Einstein, Marketo, HubSpot, and Acquisio. Generative AI tools for generating content and ideas include Frase, Jasper AI, Claude, and Writer.

There are also a number of AI tools specific to the financial industry. They include:

  • SigFig aims to help investors design diversified portfolios based on unique needs and goals.
  • Platforms like Truvalue Labs and Datamaran provide insights into a company’s environmental, social, and governance (ESG) performance for better decision making.
  • PulseFolio is an AI-powered crypto portfolio optimizer with built-in risk management features.
  • Ocrolus combines the power of machines and humans for accurate data verification and document processing.

Will AI Replace Financial Advisors?

There are no guarantees for the future of AI in financial advising, but adoption in the industry is on the rise in many financial sectors. According to a KPMG survey of financial services leaders, 84% said AI is “moderately to fully functional” at their organization.1 And research from NVIDIA found over 75% of companies across all financial sectors were using some kind of accelerated computing (such as deep learning or machine learning).15

Is AI Technology Regulated in Financial Industries?

As a rapidly evolving technology, governments around the world are still figuring out how to regulate AI’s use as of 2023. For the time being, there are no specific regulations on AI. However, the U.S., E.U., and other governments are hinting at potential policies, and financial service companies may be among the first affected. To provide usable results, AI still requires human oversight.

What Is the Best AI Tool for Financial Planning?

The best AI tool for financial planning will depend on your goals with the technology. The wide range of AI tools on the market today can perform a variety of tasks that can generate content, help advisors customize solutions, and save time. You’ll want to consider other factors like the tool’s accuracy and user-friendliness, as well as associated costs.

How Can Financial Advisors Use AI to Find New Clients?

To help financial advisors find new clients, AI can make pitching and outreach faster. It can draft email templates and customize them based on specific client data. LLMs can generate ideas for social media content to build authority and make connections online. Advisors could use AI tools like ChatGPT or Pi.ai to brainstorm creative marketing ideas to attract new clients. These tools could also help advisors to predict client needs and goals, and tailor messaging and outreach to meet those needs.

Bottom Line

As AI explodes into the mainstream, the technology presents endless potential for innovation–and for disruption. AI can help financial advisors save time, automate operations, and provide better and more personalized services. It can help them create opportunities, manage risk, and prevent fraud. AI also has the potential to enable better transparency and compliance and reduce costs.

With all of these benefits, advisors can focus on more strategic activities, like providing advice. On the other hand, AI has potential legal, ethical, regulatory, and privacy implications. Financial services professionals would be wise to pay attention as the situation develops.