'We all have too much to lose in reputation,' warns one CEO. 'It’s not worth it'
Most young financial advisors say artificial intelligence will enable them do their jobs better, but they also say their firms restrict the use of the nascent technology, in part because of regulatory concerns, according to a study released Wednesday.
The majority of financial advisors polled — 64% — said generative AI would be a help to their practice, and 57% said it would be helpful to the investment advice sector, according to the 2024 Connected Wealth Report: AI & the Next-Gen Advisor. A little more than one in five — 21% — of respondents see AI as a threat to their careers and 31% perceive it as a threat to the advice sector. The average age of the responding advisors was 36.5 years.
“Financial advisors believe AI is a plus for themselves and the industry,” said a presentation about the report, which was sponsored by Advisor360, a wealth management software platform. “Most advisors expect AI to improve the front office and back office in some form.”
The results run counter to the usual apprehension that accompanies technological advances, said Darren Tedesco, president of Advisor360.
“The fact that advisors are ready to embrace AI as a complement to serving clients rather than a threat is really good news for the industry,” Tedesco said in an interview. “It will allow them to serve clients better. Think of it as a virtual digital assistant.”
The vast majority of advisors surveyed — 83% — said they have access to natural-language generation technology, but only 39% are using it. The biggest challenges to utilizing the technology are firm restrictions (31%), concerns about data security and privacy (27%), and compliance and regulatory issues (25%).
The hangups about using AI are related, Tedesco said, and revolve around a lack of direction on how the technology will be regulated.
That’s one of the factors deterring Brett Bernstein, founder and CEO Of XML Financial Group. His firm doesn’t use AI for client interactions or business operations, and it doesn’t plan to do so for a while.
“I’m too concerned about compliance and cybersecurity,” Bernstein said. “I don’t need to be the pioneer. We all have too much to lose in reputation. It’s not worth it.”
The SEC has proposed a rule that would require investment advisors and brokers to eliminate or neutralize conflicts of interest related to the use of AI in providing investment advice. The proposal is among those that have generated fierce pushback from the financial industry.
Generative AI, such as ChatGPT, has burst onto the scene this year. It could have its largest impact in the financial markets, SEC Chair Gary Gensler said. In the meanwhile, the SEC and other regulators will wrestle with its ramifications.
“Clarity on what needs to be done and who’s responsible for information that’s served up [to clients] will lead to higher financial service industry adoption,” Tedesco said.
Bernstein said he can foresee his firm using AI as a way to save time on research and perhaps some operational processes. Although AI can vacuum up data, it’s not yet capable of using it like an advisor.
“Do I think AI can scour data out in the marketplace and give us consolidated information and reporting? Yes,” Bernstein said. “What I’m not sure of its whether AI can give me recommendations or investment advice that I believe is sound and understands my clients’ risks, goals and time horizons.”
He added: “I don’t think AI is going to disrupt the industry the way mutual funds and index investing did. I think it certainly can be a complement to the industry.”
The study is based on a survey of 300 financial advisors and executives at large broker-dealers, registered investment advisory firms and bank trust companies across the country, who were polled in September and October.
Survey participants worked at large wealth management firms with an average of $9 billion in assets under management and 1,000 employees. The advisors surveyed on average managed $40 million in client assets.
