Machine learning in wealth management: Transforming the industry with AI
Mark Coleman, November 16, 2023 ~ 3 min read time
AI is driving profound change in nearly every industry, including wealth management. At Advisor360°, we have a dedicated team that focuses on data quality and laying the foundation for impactful and actionable AI-related tools to help industry executives and advisors streamline and grow their business. Recently, President of Advisor360° Darren Tedesco detailed how meaningful insights can only be gathered from data that is clean, consistent, canonical, and comprehensive.
Central to that goal is machine learning—a key subset of AI that uses algorithms to produce models that perform complex tasks. Importantly, machine learning powers some of the most notable AI advances of the day, from the practical to the revolutionary. Chatbots, driverless cars, facial recognition and high-volume trading algorithms are all enabled by this brand of AI.
Whether we realize it or not, machine learning is embedded in our everyday interactions. Amazon uses it to analyze our one-click shopping patterns to predict what we’re likely to buy. Netflix does the same—while you’re binge watching, its projecting what shows might tempt you next. Similarly, NFL teams use predictive models to identify top-performing college players that may become future stars. So, while AI functions like machine learning seem new, they have been gaining prominence for some time.
Machine learning in wealth management
The crux of AI implementation lies in uncovering and developing strategies to build business at scale. Our team identified four wealth management industry user segments that can harness AI to address unique needs and challenges.
1. Home Office
Generative AI analytics and machine learning models can support the growth and success of large broker-dealers and home offices. For instance, machine learning can be used to identity the personal characteristics and technical skills of their top performing advisors. In the same vein, enterprise wealth firms can use machine learning to pinpoint their ideal client profile. Companies that offer their advisor teams these types of tailored insights, not just broad business statistics, will add more value and are more likely to retain top talent and grow at scale.
2. Advisors
The same concepts apply to advisors. AI and machine learning can uncover patterns that help advisors make better decisions and customize client service. For instance, machine learning can utilize predictive modeling to help isolate a client’s risk profile to determine an ideal investment strategy. It can also be used to analyze client behavior—like how often they log in to view their accounts or what screens they view—to create customized client service strategies. AI can pinpoint a client niche using factor analysis, thereby guiding advisors to target their marketing and sales strategies.
3. Investors
We envision a future where AI hastens the understanding of factors that align with clients’ long-term financial well-being. Improved transparency into portfolio management activities, performance, and risk are just the starting points. The advisor, the client, and AI will be partners in the planning process.
The endgame here is to capture insights that improve the lives of individuals and families. Financial anxiety almost always stems from uncertainty about the unknown. Imagine, though, if AI were used to take those broad and difficult-to-identify fears and lay them out in plain sight. From there, the advisor can develop a game plan to quell the fear and plan for success. It’s just one example of what the future of AI in the client-advisor relationship could look like.
4. Platform
We’ve all used ChatGPT and other generative AI tools—although the output quality remains a problem. At Advisor360°, our team continues to develop programs and platforms aimed at helping our clients increase productivity and improve their workflows. We’re currently working on a host of applications, including generative AI tools, programs to better understand advisor and client behavior, and insights engines (among others) that have the potential to revolutionize the experience for our customers. Be on the lookout for new tools and features that will help you grow your business.
Staying ahead in a competitive landscape
AI has infiltrated fintech. We are excited about it, and this year at Advisor360° has been partly devoted to discovering how AI and machine learning in wealth management can improve the processes and businesses for enterprise wealth firms and their advisors and clients. AI may be a competitive differentiator today, but it will be commonplace before long. Thus, it is imperative to have access to programs and platforms designed for your business. Our product roadmap continues to evolve, and we are excited about what the future holds.
Mark Coleman is Director of Analytics and Advanced Insights at Advisor360° and is responsible for identifying business, process, and feature opportunities where AI can be the most impactful and drive improvements.
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