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The role of AI in financial planning: Insights from the US

The role of AI in financial planning: Insights from the US

Ever since ChatGPT burst onto the scene late last year, generative AI has been front and centre of business discussions and financial planning, just like any other industry, ignores it at its peril.

I recently journeyed to the US to attend a series of conferences discussing AI and how it fits into financial services and financial planning. Operating in a sector of the industry (VBP supports financial planning firms’ back-office operations) that is particularly exposed to being automated by AI, I believe it’s even more important to understand exactly what is happening so we can not only help financial planning businesses in this transition, but also adapt our own business model to survive.

AI is transforming industries and professions, and advisers must be prepared to adapt and evolve. While this, of course, involves understanding the technology and how to use it best in practice, it also means understanding and focussing on what an actual ‘human’ can bring to the experience for clients.

At one of the conferences I attended, a futurist spoke about the future of work and what work will look like in five, 10, and 15 years’ time. AI can enhance the way many of us work, but we should all still be ‘majoring in human’. That means the areas we should all be focussing on are those where the ‘human’ component is important, including:

  • Human judgement – evaluating, extrapolating
  • Empathy – sense making and lived experiences, and
  • Intuition – understanding behaviours

Majoring in human and human interaction is still essential as we continue to adopt AI in our working processes.

The AI co-pilot

Generative AI is mostly a pattern detector and generator, operating at warp speed. It is extremely good at sourcing information and providing language content tailored to specific instructions.

As for its role in financial planning, I see a future where every financial adviser, or professional working with financial advice, will have an AI type co-pilot that will assist and work with them.

A financial adviser could ask this co-pilot to review the data they have on a particular client before a review, for example. It could pull up the data and give the adviser a summation of what financial interactions that client has been having – whether or not they have been accessing a client portal, information they have downloaded and other financial apps they may have been interacting with.

This would obviously speed up the whole review process and free up the adviser’s time to focus on the interaction with the client themselves i.e. majoring in the human component of the interaction, while the co-pilot could ‘major’ in the data side of the process.

This efficiency fix could effectively help with some of the major problems the financial advice industry in Australia is facing. It’s no secret that there are a shortage of financial planners and the planners that are still in operation are finding it increasingly difficult to service more clients and meet their legal and administrative requirements.

The increased use of AI co-pilots in financial advice is one of the three factors that should hopefully change the industry landscape by bringing down the cost while also increasing adviser capacity and making it available to more people.

The other two factors are the Quality of Advice Review recommendations and being able to use global best pricing through outsourcing. These three things combined should make it much easier and more cost effective to deliver advice.

Currently, many financial advisers feel like their capacity for clients is capped at around 100 to 120. But by embracing all three factors outlined above, firms that are able to lower margins and take market share, will be able to double the number of clients their advisers are able to service.

Due to its recent rapid developments, generative AI has created the most noise but there are other technological advancements which, when combined with generative AI, will be particularly powerful to the financial planner. For example, the adoption of intelligent automation and building out digital workers across multiple platforms could be accelerated.

Targeted marketing

Generative AI offers more potential to target marketing communications right down to an individual level. In my travels in the US, I saw examples of marketing that can offer hyper-individualised content based on an individual’s response to certain questions, as asked or inferred by an AI prompt.

This works like algorithms in social media that deliver content based on a person’s viewing history.

In this brave new world of AI, unfortunately anyone that delivers generic content like a standard EDM or newsletter will be wasting their time.

AI will help financial planners not only offer an engaging and appealing service but by gathering this information properly to the onboarding process via machine learning, they will be able to provide the client a much better experience once they do actually sign up.

Just like an Instagram or TikTok feed delivers the user more content based on what they interact with, the financial planner will be able to deliver tailored advice, that meets the clients’ individual needs. This helps establish a strong relationship with the client, who then values the brand for their understanding of their unique financial challenges and issues.

Evolving business models

After decades in financial planning, I started VBP 10 years ago after becoming increasingly frustrated with the growing administrative, compliance and legal burden placed on financial planners.

Over the past 10 years we have built a very successful business that helps financial planners manage their back office responsibilities. However, I now believe that 50% of the work we do has the potential to disappear within three years. And we need to make some serious contingency plans if we want to survive and continue to grow.

Hopefully we should be able to retrain a good percentage of our workers to be able to do more complicated tasks, but it would be a death sentence for our business if we just sat on our hands. This was also partly why I took the research trip to the US, to be able to create a new business strategy that could survive and potentially thrive under these new conditions.

Ethics and security

Generative AI will make much of our work lives easier, but it also needs to be handled with care. At the most basic level, generative AI mines or scraps data from a data set – usually the internet – but does not provide any proof that what it delivers is factual.

There have already been many instances of AI ‘hallucination’ where nonsensical or untrue answers to questions are provided.

As some early users have already found, this can get them into a lot of trouble. A US-based lawyer using ChatGPT to research a case did not fact check the source cases provided and was fined when it was discovered they were not real.

Financial advisers have legal obligations to their clients around the advice they provide and would be foolish to rely solely on anything generative AI provides in response to questions. But financial firms also need to consider the security of the client data they hold and how AI might be used.

Mid to large-size firms that naturally have more clients, and therefore more data about those clients, could be at an advantage as they would be able to train and use the AI in their own ecosystems, effectively quarantining it and ensuring the security of those systems.

If it were to leave a business’s ecosystem and start sourcing data from the internet, while still having access to the firm’s data, that data would potentially be compromised.

In the absence of any explicit laws around the use of generative AI in Australia, any financial planning company considering using generative AI, needs to have written policies in place about how client data is being used to train AI and clients need to be made aware and approve of these policies.

A brave new world

The speed of change is continually accelerating. At one of the conferences I attended in the US, the presenter spoke of how this acceleration will even effect ‘generations’. The average time frame of a generation – i.e. Gen Z, Millennials, Gen X and Baby Boomers – is considered to be 15 or 20 years but like everything in the world this is speeding up and this could soon be halved as the technology that each generation becomes familiar with, and their adaptive capabilities, changes.

Of course, this speed can be concerning, especially when it could mean our jobs disappear, but there is also much to celebrate about these major technological developments.

It could make computer programming and system design accessible to many more people. Coding was once the sole domain of IT professionals who understood coding languages and knew how to use them. But now you may not need to be a developer or coder to be able develop programs and applications specific to your business needs, with AI being able to do the grunt coding working.

Human financial advisers are unlikely to become obsolete just yet. The value of a good financial adviser has always been and always will be in their ability to open a client up to share things – both personal and financial – that are important to them and for an adviser to be able to take those insights and revelations and develop a plan and guide the client on the journey that helps them meet their financial goals.

A lot of this will involve experimentation and testing different practices and processes. A big challenge for us, for example, will be upskilling or retraining workers to conduct new tasks and by using our own firm as a guinea pig, so to speak, we hope we can pass these learning onto our clients.

It is imperative for financial advice businesses to take stock of how generative AI will change their businesses.

Will it, for example automate the bulk of what a paraplanner currently does, and if so, what would that mean for the financial adviser? If the firm is considering going all in on AI, do they have the appropriate security and ethical policies and processes in place? And how will they explain this to their clients.

These are the discussions that all financial planning firms should be having as they develop their own AI strategies.

About the Author
David Carney
David Carney transitions to VBP’s Head of Growth. In his role, DC spearheads sales, marketing, innovation, and entrepreneurial focus. Collaborating closely with teams, he directs growth initiatives to meet evolving client needs and industry shifts. As a vital member of the executive team, David prioritises growth in VBP’s strategy, ensuring sustained profitability. With a dedicated and systematic approach, he drives the organisation toward sustainable growth, leveraging his extensive experience and strategic vision to propel VBP forward in a dynamic marketplace.

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