Margaret Franklin explains what she has seen in other markets and what Canadian advisors can do to prepare as AI upends this industry
Margaret Franklin has watched as the world’s largest wealth management firms and platforms grapple with the rise of Artificial Intelligence. Franklin is the President & CEO of the CFA Institute and sees firsthand the developments occurring in global markets that will come to impact advisors in Canada and around the world. She detailed some of the steps firms are taking in other key markets — notably the US — and the questions those steps raise for advisors and industry stakeholders about the skills they’ll have to learn and the safeguards that have to be put in place.
“I look at AI as augmenting what advisors are doing, I think it will be a requirement for them to be up to speed at a proficient level,” Franklin says. “I was recently speaking with a chairman of one of the biggest global financial institutions with one of the largest wealth management platforms in the high net worth and ultra high net worth space. The average age of their client is 59, average age of their average advisor is 57. That's a generation that is not digital native, and as that wealth transfer occurs and as wealth creation at younger generations occurs, the next generation are just not going to accept a way we've done it before. What I see broadly that people who want to stay competitive, who want to do better, will need to embrace technology and AI.”
In the wealth management industry Franklin has seen that AI adoption begin with the ‘lowest hanging fruit’ of automating repetitive administrative tasks. Automating these tasks can often produce safer results with less human error without compromising the key human elements of the advisor-client relationship. She says that many US firms are now looking at ways to apply AI beyond just scut work.
The core question these firms are asking, Franklin explains, is how they can apply AI to improve client relationships and client outcomes. That can mean AI-informed risk appetite assessments through portfolio and client behaviour monitoring. That can also mean using AI to build more cost-effective access to different asset management strategies. Franklin highlights the ability of an AI to highlight developments that might go unnoticed by a human observer. If market movements have resulted in a client with a level of exposure of portfolio concentration that doesn’t align with their risk tolerance, for example, an AI might be able to highlight that and suggest a course correction to the advisor. She also believes AI might make fees more transparent, which could be a ‘game changer’ for clients’ understanding of fees in their total returns.
For all its promises, AI comes with a few significant challenges, too. Regulators around the world, Franklin explains, are concerned about data protection and usage for purposes other than its original intent. Securities commissions, she notes, are looking closely at privacy regulations and ways to ensure that these technologies can be used safely.
As companies consider regulatory oversight and data safety, Franklin outlines some of the choices they need to make. She notes that there is significant cost associated with building out AI platforms and reforming legacy systems to accommodate AI functions. Change management work is key, too. Franklin likens the adoption of AI to the sudden uptake of video call platforms following the COVID-19 pandemic. These tools may be introduced slowly now, but circumstance will demand their rapid adoption soon.
The core choice firms face, though, is how to build out a system that protects clients, advisors, and their own data. Franklin says that many are electing to build closed systems with third-party partners. Tech firms like Microsoft, she says, are working on systems that can be embedded into an organization, customized to their unique needs, and respectful of proprietary data. Franklin cautions wealth management firms using broader models like ChatGPT simply because there are fewer proprietary data protections in place.
As firms and advisors look at AI tools for their own operations in Canada, Franklin acknowledges that there can be some reticence and fear. Wider society is rapidly forming views on AI and the possible job replacements that could emerge from its adoption. She argues, though, that by looking at the specific applications and trying them out, firms and advisors can come to quickly understand what aspects of their work will change and what aspects will not. Subject matter experts, she notes, are even more essential in an AI environment as both the source of the prompt and the assessors of the output. Human expertise is essential to this process.
As many of these changes begin to take hold in the US wealth management industry, Franklin notes that Canadian advisors can enjoy a bit of a ‘second-mover advantage.’ They can see what is changing with the knowledge that similar processes will soon arrive here, but with a view as to what the impacts will actually be.
“I think the big global financial institutions are excellent places to be paying attention to just acclimatize yourself to what is possible and how that might impact your practice and the way that you serve clients,” Franklin says. “You can resist it, I think at your peril, or you can embrace it, and some of it can just be being curious about the applicability of it, as well as the ethical considerations. How they apply to your practice really can be consequential. Immerse yourself in it to the extent that it makes you more prepared, which has always been the hallmark of the best wealth professionals.”
