Machine learning has been used in high-frequency and algorithmic trading for some time, but artificial intelligence is yet to be widely adopted in the financial advice sector, robo-advice notwithstanding.
AI is the use of machines to perform functions once thought doable only by humans. Machine learning is a subset of this and involves the use of machines to compute data and produce insights from it.
There are many potential applications of AI and ML in financial advice. For instance, they could be used to determine whether an individual needs a mortgage or has the capacity to pay off one. They might also help ascertain the tax impact of certain investment decisions.
Mark Humphery-Jenner, associate professor of banking and finance at UNSW Business School, says they could also assist with portfolio construction.
“This is a natural extension of existing fintech products such as Macrovue, which aim to connect stocks together based on different investment themes,” Humphery-Jenner explains. “AI would assist in constructing and identifying those trends by analysing large amounts of data and looking for emerging links.”
This is why now’s the time to start exploring how financial advice businesses are likely to change as a result of these technologies.
“Advisers are an interface between clients and the raw output of AI programs,” Humphery-Jenner says. “It’s up to advisers to interpret the outcomes of AI programs and ensure insights are appropriate for the client’s current situation.
Rather than seeing AI as a threat, there’s an opportunity for advisers to fill a vital role as an intermediary, providing access to financial products and advice when technology cannot provide a solution.
Additionally, unlisted investments such as private equity and venture capital may be in datasets AI can’t incorporate. It also may not be appropriate to use AI for recommendations on complicated and thinly traded investments such as property.
Humphery-Jenner says: “Real estate, in particular, requires the input of non-numerical and observational data that is not obvious in established databases.” Therefore there’s a role for the adviser to play guiding clients’ property investments.
There’s time to get ahead of the crowd
Australia is still a relatively unsophisticated market when it comes to the adoption of new technologies and there are plenty of opportunities for advisers to build AI into their businesses to achieve a competitive advantage.
Craig Banning, a director and wealth adviser with Navwealth Financial Services, says when he was recently in the US, AI was just part of a business-as-usual approach to the provision of financial advice.
“It’s everyday conversation,” Banning says. “Many accountants and financial advisers are still managing the cost to serve clients and improving software. The idea of artificial intelligence seems too futuristic, but it’s already being used across many industries, including financial advice.”
The message to financial advisers is to keep AI and ML as a watching brief as they are set to transform the sector over time.
