Wealth management and the impact AI can have on the democratization of services that have long been the prerogative of a few.
In the discussion on the impacts of artificial intelligence, the focus is often on its effects, both positive and negative, on the world of work or on people’s privacy, while a less considered aspect is the impact that AI can have on the democratization of certain services that for a long time were the prerogative of a few and that can now be accessible to a multitude of people.
In the financial sector, democratization has already been underway for some time. More and more people are accessing the world of investment thanks to numerous neo-broker platforms, which allow anyone to invest even just €100 in the financial market. However, what has always been missing is a higher value-added service for that vast range of users who do not fall into the “do it yourself” target but who still require a personalized service in managing their finances.
Today, thanks to the various applications of AI in wealth management, this personalization can be made available to everyone and not just to the High Net Worth Individuals segment (the only one capable of covering the “commission costs” deriving from the advisor’s time and effort). AI makes the automation of complex and costly tasks possible, making high-quality financial advisory services more accessible.
This revolution not only brings more people closer to the world of investment, but also elevates the role of the financial advisor, placing them at the center of an ecosystem where they can offer significant added value. Financial advisors, thanks to AI, can now focus on strategic and higher-impact activities, improving the client experience and offering a highly personalized service.
The personalization trend
To respond to the needs and desires of new generations, the construction of investment strategies by financial advisors should align personal satisfaction with financial gain. Indeed, the most relevant trend in the world of wealth management is personalization, as shown by recent surveys, especially among Generation Z and Millennials, the continued relevance of direct indexing, and the growth of investments in separate management.
Source: Schwab Advisor Services’ 2022 Independent Advisor Outlook Study. The survey responses come from 723 independent investment advisors who custody assets with Schwab or TD Ameritrade Institutional from October 12 through October 28, 2021.
To respond to the needs and desires of new generations, the construction of investment strategies by financial advisors should align personal satisfaction with financial gain. Indeed, the most relevant trend in the world of wealth management is personalization, as shown by recent surveys, especially among Generation Z and Millennials, the continued relevance of direct indexing, and the growth of investments in separate management.
According to research, 52% of advisors believe that investors will want greater personalization in the next five years. 38% believe that Millennials seek personalization more than any other generation.
Furthermore, 96% of American advisors plan to integrate direct indexing and personalized SMA (Separate Managed Account) options for clients. Direct indexing is an investment strategy that allows investors to directly purchase a basket of stocks that replicates a market index, rather than investing in a mutual fund or an ETF that follows the same index. This strategy offers a level of control and personalization that is not possible with other complex financial products. In fact, more and more clients are requesting separate management that combines their needs for risk, personalization, and socially responsible investment.
Challenges of personalization in investments
Personalization is often seen as an additional commission cost for the advisor, who is forced to offer personalization services only to those clients where this cost can be borne, typically HNWI (High Net Worth Individuals). This no longer needs to be the case: AI has allowed an increase in the efficiency of the wealth manager’s activities, who can now focus on value-added services and move from a focus on investment to one on experience.
The real challenge, however, is being able to balance the vision of the bank, institution, or wealth management company (allocation, geographical distribution, economic vision, etc.) with the client’s personalization requests (tax efficiency, ESG needs, thematic perspective). For example, FinScience has developed a proprietary platform capable of creating, managing, and presenting mono- and multi-thematic portfolios for its clients in just a few minutes. This solution responds to the growing demand for investments in new themes and trends, offering investors the opportunity to capitalize on these emerging trends in a timely and efficient manner. The real challenge for wealth managers is to quickly identify these investment opportunities and present them to clients in a clear and convincing way. Thanks to FinScience’s advanced technology, advisors can build highly personalized thematic portfolios based on data-driven insights and real-time market analysis. This not only increases reactivity and agility in investment management but also improves the client experience by offering investment strategies that reflect their specific interests and values.
Source: MSCI. A roadmap to personalization. Oct 19, 2023
How AI can help with personalization
AI is therefore allowing wealth managers to focus more on the user experience, improving client management and increasing the level of personalization. There are several areas where new technologies can help.
● Portfolio Management: AI solutions allow for the creation of diversified portfolios in a very short time, reducing commission costs and offering personalized solutions to clients of all sizes. AI technologies improve personalization and the management of investment portfolios on a large scale, allowing for more specific and nuanced investment strategies based on factors such as ESG characteristics or thematic exposures. Now, AI can manage different needs across multiple portfolios simultaneously, overcoming the limits of old portfolio management systems.
● Client Profile Analysis: AI provides advisors with advanced tools to analyze client needs and create personalized portfolios. Using machine learning algorithms, AI can quickly collect and analyze a wide range of financial data, preferences, and behavioral data, allowing advisors to develop suitable investment strategies in a very short time. These tools allow for the identification of clients’ risk preferences, their financial goals, and their spending habits, offering a complete and detailed view of each client’s profile.
● Presentation and Offering of the Strategy to the Client: AI can also significantly improve the presentation of portfolios to clients. By using advanced data visualization technologies, AI can create automated and engaging reports that clearly show the added value of the advisor’s offering. These reports can include dynamic charts, detailed analyses of portfolio performance, and future projections, making financial information more understandable, dynamic, and transparent for clients.
● Tax Efficiency thanks to AI: AI can optimize the tax efficiency of investment portfolios, identifying tax-saving opportunities and loss-harvesting strategies more effectively than traditional methods. This allows clients to maximize their net returns, taking tax implications into account.
In conclusion, artificial intelligence is redefining the wealth management sector, improving service personalization and increasing operational efficiency. AI enables more effective client management and the creation of diversified portfolios at reduced costs, automating repetitive tasks and offering highly personalized services accessible even to small investors. With AI, the future of wealth management appears increasingly innovative and client-oriented, opening up new opportunities for both advisors and investors. We are close to a revolution in the field of AI in wealth management, where technology becomes a powerful ally for financial advisors, making high-level services accessible to a wider and more varied audience.
