AI for Financial Advisors: What Will It Mean for your Business?
AI has been transforming the financial advisory industry, bringing about significant changes and improvements in how financial advisors offer their services and assist clients. By leveraging the power of AI, financial advisors can enhance their service offerings, improve client outcomes, and streamline their operations. However, it is essential for financial advisors to strike the right balance between using AI technology and providing a human touch to build trust and rapport with their clients.
Here are some key ways AI is impacting the financial advisory industry:
Benefits of AI for financial advisors may include:
Efficiency and Productivity: AI can automate many of the tasks that financial advisors currently perform, such as data analysis, portfolio management, and client reporting. This can free up advisors to focus on more high-value activities, such as building client relationships and providing advice.
Better Decision-Making: I can help financial advisors make better decisions by giving them more data and insights. AI can also identify patterns and trends that humans may not be able to see, which can help advisors provide more informed investment advice.
Client Relationships: AI can be used to provide personalized advice to clients based on their individual needs and goals. This can help advisors build stronger relationships with their clients and deliver more effective advice.
Cost Savings: AI can help financial advisors reduce costs by automating tasks and streamlining processes. This can make financial advice more affordable for clients.
There are already some interesting applications of AI for financial advisors. Here are a few companies bringing them to market.1
IndexGPT by JPMorgan Chase: According to CNBC, JPMorgan Chase is creating IndexGPT, a software tool akin to ChatGPT that uses disruptive artificial intelligence to choose assets for users. According to the application, IndexGPT will use "cloud computing software with artificial intelligence" for "analyzing and choosing securities suited to customer needs."
Live Client Chat by Orion Advisor Solutions. Orion Advisor Solutions has implemented ChatGPT-3.5 in its Redtail Speak real-time communication platform for financial advisors. The program suggests responses the advisor can give to clients based on a chat thread. The system adjusts for context and sentiment. So, if a thread shows that a client is very nervous, the app will provide some ways to allay the fears with a suggested response.
Financial Analysis by Instabase: The generative AI platform, AI Hub, was released by Instabase. Users can quickly locate information in documents, even those that are handwritten. AI Hub uses OpenAI's GPT-4 model. It is made up of different apps, including one called Form 10-K. This allows you to upload any SEC filling and ask questions like, "What is Apple's CAGR" or "How long will the company's cash flow last?" Some of the other apps gather data from W-2 forms, U.S. bank statements, and driver’s licenses.
Client Communications and Marketing - Writer. Client communications is one of ChatGPT's early use cases; however, it has downsides, such as cybersecurity threats. For this reason, a premium app like Writer might be an excellent tool for advisors. Writer is designed to create interesting material for websites, emails, social media, advertisements, and landing pages. Every step of the way, a firm's distinct voice is used. Using Writer has improved consistency in communications and has reduced mistakes.
Machine Learning Investments Tick Up in Q12
After plummeting to their lowest levels since 2020 in Q4 2022, global private equity deal values in artificial intelligence and machine learning companies are showing signs of recovery in 2023. S&P Global Market Intelligence data shows that between January 1 and May 14, 2023, private equity and venture capital companies reported $10.34 billion in investments across 342 deals in the AI and machine learning industry globally. And this shift, according to experts, is expected to create approximately US $2 trillion in market-value by 2030.4
“The world’s first trillionaires are going to come from somebody who masters AI.”
- Mark Cuban
Investor, and Owner of the Dallas Mavericks
“Machine intelligence is the last invention that humanity will ever need to make.”
- Nick Bostrom
Professor, University of Oxford
Source: The Motley Fool, July 2023. “Who Stands to Profit the Most from the AI Gold Rush.”
Global PE/VC-backed investments in AI and Machine Learning 2020-2023
Data compiled May 15, 2023.
Year to date through May 14, 2023.
1 Investor group includes Spark Capital VII LP, General Catalyst Group Management LLC, Addition Ventures LLC, SV Angel Management LLC, Spark Capital Partners LLC, Workday Ventures Inc., Atlassian Ventures, General Catalyst Group XI - Endurance LP, Expotential Technologies Frontiers Fund Management Co, LLC, Greylock Partners, PSP Growth, Spark Capital Founders Fund VII LP, Microsoft Corp. and Nvidia Corp. PE/VC = private equity or venture capital.
Analysis includes global whole-company acquisitions, minority stake acquisitions, asset acquisitions, and rounds of funding in its topic tag, and the buyer/investor is or includes a private equity or venture capital firm. Artificial intelligence tag is associated with companies that operates in or provides Al or machine learning tools/platform' research/algorithms. Al is the simulation of human intelligence processes by machines, especially computer systems. The machine learning tag is associated with companies that operate in or provide solutions and services related to artificial intelligence, learning algorithms, deep learning, etc. It is a type of Al that allows software applications to become more accurate at predicting outcomes without being explicitly programmed to do so. Topic tags are niche industry classifications generated by S&P Global Market Intelligence based on Market Intelligence business descriptions. Excludes terminated deals. Source: S&P Global Market Intelligence. © 2023 S&P Global.
The largest private equity investment in the sector so far in 2023 is Silver Lake Technology Management LLC's $2.70 billion deal to buy Germany's Software AG, which provides solutions for predictive analytics, artificial intelligence, and machine learning. The price of the offer is €30 per share, subject to a 50% plus one share acceptance requirement. The second-largest deal was Francisco Partners Management LP's acquisition of continuous intelligence platform Sumo Logic Inc. for $1.42 billion.
Global PE/VC-backed investments in AI and Machine Learning 2020-2023
Data compiled May 15, 2023.
• Quarter-to-date through May 14, 2023.
PE/VC = private equity or venture capital.
Analysis includes global w hole-company acquisitions, minority stake acquisitions, asset acquisitions, and rounds of funding announced between Jan. 1, 2020, and May 14, 2023, where the target is classified as artificial intelligence or machine learning in its topic tag, and the buyer/investor is or includes a private equity or venture capital firm. Artificial intelligence tag is associated with companies that operates in or provides Al or machine learning tools/platform/ research/algorithms. Al is the simulation of human intelligence processes by machines, especially computer systems. The machine learning tag is associated with companies that operate in or provide solutions and services related to artificial intelligence, learning algorithms, deep learning, etc. It is a type of Al that allows software applications to become more accurate at predicting outcomes without being explicitly programmed to do so. Topic tags are niche industry classifications generated by S&P Global Market Intelligence based on Market Intelligence business descriptions.
Excludes terminated deals.
Source: S&P Global Market Intelligence.
© 2023 S&P Global.
Gary Marcus and Anka Reuel of The Economist contend that in order to reduce the hazards of prejudice, misinformation, and worse, global governance must be given top priority.3 Demanding thorough safety assessments before potent AI tools are made available to the general population is a key first step. Tech companies shouldn't release new artificial intelligence (AI) tools until they have been made safe, just as a pharmaceutical business cannot release new pharmaceuticals before researching both their short- and long-term side effects. For new technology, we require a comparable to the Food and Drug Administration.
AI deployments left unchecked will lead to social upheaval, which would help autocrats and destroy democracies. Democracy is a conversation, and conversations rely on language. When AI hacks language, it could destroy our ability to have meaningful conversations, thereby destroying democracy.
This potent technology provides astounding potential while also creating fresh dangers. To strike a balance between the two requires caution. A methodical approach today can provide the foundations on which further rules can be added in future.
AI investing uses advanced mathematical models and algorithms to make transaction decisions and investments on behalf of humans. It has a solid position in the financial sector since it can automate a large portion of the investing process, making it more effective. It is a high-tech, dynamic function that is always changing and will certainly be around for years to come.
As an advisor, it’s important to take advantage of AI’s abilities. The managers on our platform are not only using AI to trade themselves but are also backing companies in the AI industry.
Sources:
- Barron’s, June 2023. “These 4 Companies Have Created ChatGPT Applications Financial Advisors Can Use.”
- S&P Global Market Intelligence, May 2023. “Private equity investments in AI, machine learning tick up in Q1.”
- The Economist, April 2023. “The world needs an international agency for artificial intelligence, say two AI experts.”
- Statista. “Global artificial intelligence market size 2021-2030.”
Learn which funds are active in the AI private investing space.
For registered investment advisors only.