AI is a transformational technology that threatens to disrupt every corner of the financial services industry, according to asset management behemoth Vanguard, but there is a world in which advisers and AI work together.
In the financial advice sphere, AI will excel in some areas but will fail in others, said Sid Ratna, head of digital and analytics, financial advisor services.
Analytics, or work that relies on processing data, will be done by AI as it can “analyse vast datasets, simultaneously optimise multiple portfolios, and update financial plans in real time, all faster than a human adviser.
“AI eliminates many administrative and computational burdens that once consumed your day and clients will start to expect this increased speed and efficiency in their relationship with you.”
The tasks that clients seem to be comfortable being automated include aggregating account data, risk profiling, cash-flow modelling and market research, according to Vanguard.
Then there are the areas where AI will require some human oversight. Here, the firm put portfolio construction and rebalancing, asset allocation and tax-loss harvesting, as well as financial planning simulations such as retirement projections.
On portfolio construction, Vanguard said “AI and algorithms already outperform manual approaches in efficiency”, while on simulations, the firm noted that “AI tools can dynamically personalize and update plans”.
“AI erodes the adviser’s advantage in analytical intelligence – data gathering, number crunching and market monitoring are now automated and scaled beyond what any human could achieve,” said Ratna.
Where advisers will make their money in the future will be on what he described as “empathy-driven tasks”, such as behavioural coaching and life planning.
“While analytics-driven tasks calculate what the right answer is, empathy focuses on how to deliver the right answer in a way that maximises the client’s ability to understand and act upon the analysis. For example, a human still needs to review AI-generated materials before they’re sent to the client,” said Ratna.
“AI doesn’t feel anything and thus is incapable of empathy. Yes, some large language models do a great job emulating empathy, but it’s just a facsimile of emotion. Your clients know this. So even if an AI can theoretically do a task, if that task is highly associated with emotion (fear, anxiety, hope, aspiration), your client will want to deal with you.”
Importantly, these tasks are what clients value most highly, suggested Vanguard, with behavioural coaching a ‘high’ priority for clients who value emotional stability and personal interactions. Life planning was also a ‘very high’ priority and a key differentiator for humans versus the robots.
As a result, in the new era of financial advice – one in which AI conducts the analytical part of the job – clients will place a premium on wisdom and experience. Those who flourish will be able to blend AI use for data-led tasks with emotional intelligence.
How advisers can thrive
To survive and thrive in the new era, Ratna said there are three things advisers must do. First, they must embrace AI rather than shying away from it to free up more time.
“Using AI automation for data, modelling and meeting prep frees advisors to focus on strategic, high-value conversations. This includes nurturing more leads and meeting with more clients,” he said.
Next, advisers will need high emotional intelligence (EQ). “The competitive advantage is advisors’ ability to understand a client’s fears, hopes and motivations, and to guide behaviour through market cycles. AI allows human advisors to be more human,” said Ratna .
Lastly, advisers will need to become storytellers, he said, able to translate AI outputs into personalised, actionable stories that connect with their clients’ individual situations.