Disruptive technology creates 'economies of scale in hacking,' but also benefits for financial planning, argues advisor
As artificial intelligence continues to ignite the imagination, there’s an ongoing debate over whether the disruptive technology will be a boon or a bane for humanity. But when it comes to the financial advice space, one industry professional argues that the reality isn’t as simple as having one or the other.
“It's both a risk and a huge opportunity,” says John Baynham, financial planner and president of the Retirement Income Group with Carte Wealth Management.
Carte Wealth Management was recognized as one of the winners for The Best Wealth Management Firms in Canada. Read the full report here.
‘Economies of scale in the hacking game’
Following the big bang in technology adoption and development since the turn of the decade, Baynham says cybersecurity risk has gone up substantially for financial advisors. While bad actors used to need big paydays to make their attacks on financial services firms worthwhile, he says advances in technical efficiency and AI capabilities have made it more cost-effective and convenient to hack into smaller advisor practices.
“Anyone who's used ChatGPT knows that AI can sound very human now. Someone can send you an email that reads like it came from your client, and it might not be your client,” he says. “We’re seeing more and more economies of scale in the hacking game, so you need to be very cognizant of your cybersecurity and have policies in place to protect against that.”
To safeguard his clients’ information and assets, Baynham has implemented a “two-factor authentication” policy for all communications at his practice. If they receive an email purportedly from a client asking to withdraw a large sum of money, for example, he says protocol is to always confirm the instruction via a phone call with the client.
"Advisors are going to realize that it will become easier and a lot more efficient for clients to research and get information from AI than they currently get from Google,” he adds. “In order to stay relevant, many advisors are going to need to move beyond providing basic cookie-cutter advice. Financial coaching, ensuring clients are implementing strategies effectively, customized solutions and knowing your client’s financial and family situation intimately are going to become more important to an advisor’s value proposition.”
An AI-powered lift for advisors
Baynham sees a longer list on the opportunities side of the ledger. At the most basic level, he envisions AI being used as a tool for client communication: taking minutes and generating to-do lists from client meetings, automating certain email tasks, and implementing simple changes based on client instructions, just to name a few.
On the back end of the advisor business, he says he’s already using some AI tools to help with decision-making and calculations in clients’ financial plans. Beyond determining whether a certain strategy could be positive for a client, Baynham says he’s able to calculate the actual financial impact a strategy would have, which wasn’t feasible beforehand.
“If I’m considering whether contributing to an RRSP or a TFSA would be better for a client, and they can only do one of those things, I can plug those scenarios into the AI engine and it’ll tell me in percentage terms how much better off they’d be with each option,” he says. “Before, I might have to build two separate financial plans to figure that out, but now, I can do that quickly in the system … It allows us to spend less time doing manual calculations, and more time actually working on the solutions for clients.”
A third blue ocean for AI adaptation, Baynham says, lies in investment management. While that has yet to come to fruition, he argues the continued development of AI opens the door for more stock market and economic data to be fed into financial algorithms, which could create better models for predicting significant and impactful events like recessions.
“The human brain can only work with so much information, whereas AI is more expansive, so it can handle more variables and theoretically figure out better financial models,” he says. “That’ll have an impact on investment strategy going forward … We can hopefully come out with better solutions for clients on the investment side and help them achieve better risk-adjusted returns over time.”
