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AI Naysayers Should Reconsider It — Just Look at the Larger Firms

“They’re likely looking at it in the wrong way.”

The vast majority of RIAs resist using artificial intelligence due to concerns about cost and effectiveness. But for some wealth managers sophisticated algorithms are delivering insights and profits that should cause others to reconsider AI.

A December 2020 Accenture report indicated that while 84% of North American wealth managers expect that artificial intelligence will "fundamentally transform" the industry in the next five years, only 28% are scaling it across their business today. The upshot: Advisors recognize AI will help their business long-term but aren’t willing yet to make the initial investment in time and money.

Doug Fritz, a technology strategy consultant and CEO of Santa Cruz, Calif.-based F2 Strategy, described AI’s impact on the vast majority of independent RIAs, and smaller to medium-sized advisors, as negligible. “Right now, almost none.  Right now, I don’t know a single RIA firm that is actively using AI today.”   

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“The cost and the need isn’t there,” Fritz exclaims. “The cost is great, and there aren’t enough really obvious reasons that they can use it, and there aren’t a lot of vendors that can bring its price and solutions to the market.”

Fritz said he “hasn’t seen or read about any material benefits or significant wins that were worth the money spent on large AI projects.” In fact, he has heard through the grapevine of projects costing $1 million to $3 million that yielded “no measurable return or benefits.”

He asks, “In general, the value of AI for wealth managers is to make sense of the highly complex.  Who has the budget and need to make sense of these highly complex concepts?”

The answer is often larger firms. In 2011, GenTrust, an RIA with offices in New York, Miami, and Puerto Rico, which oversees $4 billion in assets with its affiliates, chose to develop its own AI capabilities. Jim Besaw, its Chief Investment Officer, acknowledged that implementing AI had been costly, even in-house. But he noted that hiring programmers and consultants in the AI field can be even more expensive.

GenTrust advisors that use AI generally like what they see. “You ask for three things it can do, and you get all three, and then you ask for a fourth,” Besaw notes. “It may have ended costing us more,” he adds, because of ongoing updates.

The company introduced AI so it “would help us do our job better and provide a higher level of service for our clients,” explained Besaw. AI enables it to be more “scalable,” Besaw noted, so it could help clients analyze their portfolios “and free up our time to focus on client interactions.”

AI helps its advisors devise a “customized investment strategy,” Besaw said, pinpointing what percentage of stocks, bonds, REITs, etc. is ideal to include in a client portfolio. Also, in seconds, AI can digest and highlight the most salient points in a 60-page earnings report, providing advisors a competitive edge.

AI tools enable GenTrust advisors todo more for clients, while keeping our head count low and making us more efficient,” Besaw said. And yet, he said, it’s not replacing financial advisors and RIAs, just freeing up their time.

Per the skeptics who insist AI is overhyped and doesn’t produce client results, Ben Brodie, GenTrust’s Chief Technology Officer, says “they’re likely looking at it in the wrong way. AI has raised the bar on what clients can expect in terms of precision of portfolio management.”

At Accenture, AI has taken hold for wealth managers, explains New York City-based Scott Reddel, who heads its North American wealth management team. “It allows them to engage clients and advise in a more personalized and scalable way,” he explains.

By integrating AI into their everyday activities, advisors can prioritize their day, respond to changes in the market, know which clients to engage with, and improve cross-selling opportunities, Reddel suggests. 

For example, if clients are renovating their home or say a child is getting married, data analytics guide the wealth manager on how to assist with their liquidity needs. AI pulls in financial data, social media updates, and provides a more holistic view of clients, Reddel says.

AI makes the lives of RIAs easier by offering “predictive analytics, all kind of data, including planning data and investment management data, about their client’s life plugged into an insight engine that helps advisors anticipate issues,” explains Gavin Spitzner, president of Baskin Ridge, N.J.-based Wealth Consulting Partners, which specializes in financial services.

Rather than advisors writing a note that they must contact a client in six months about their insurance needs, AI tells them which, say, 27 clients have gaps in insurance coverage and what products make most sense, Spitzner says.

It also enhances client interaction by letting the advisor know the best way to contact clients be it email, text or phone. “It lets the machine and computer do what they do best and lets the human advisors do what they do best,” he says.

Many smaller RIAs lack the time and resources for AI. “But if you’re an advisor who wants to double or triple their practice and wants to scale up, AI can help deliver those goals,” Spitzner says. To make AI work, firms “need people who can bridge between the business side and human cases.”

But Fritz sees several possibilities for financial managers employing AI. It can reveal why calling a prospective client on a Wednesday will yield a 70% response but a Friday will yield just a 25% response.  It can help the advisor “determine the how and when who you should be talking to that will determine success or failure.”

Most advisors enter the business because of their love of the market, and AI “takes 80% away of what you most like to do, and gives you the 20% to do, that you’re least comfortable with, such as stimulating and winning new business,” Fritz says.

In 2022 and soon after that, Fritz envisions that AI tools will make their way onto desktops at lower costs, often plugged into CRM software.

Fritz recommends that RIAs with limited budgets interested in AI should “look for firms that play within the data sets you already have, such as Salesforce, Orion, Fidelity, SS&C, Addepar.” He added that advisory firms tapping AI will ultimately win and obtain several long-term benefits.

GenTrust’s Besaw wonders how long most advisors can do their job without AI. “The advisory world is dominated by people who don’t understand technology.  At some point, two years or 20 years,” down the road, the option of doing financial advisory without AI, won’t be viable, he predicts.  It’s comparable to consumers viewing smartphones as not a luxury but a necessity. 

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