Opportunities for AI to improve financial services is 'immense'

The widespread accessibility of these tools to create new content has brought AI into everyday consciousness. Previously it had languished, largely unacknowledged, within siloed data teams, applied to only a select number of use cases.

Investors too show signs of being buoyed by the opportunity; the group of AI-linked S&P 500 stocks have increased the index's performance by 10 per cent this year.

AI innovation is rapidly accelerating growth programmes

Across all sectors, firms have rapidly accelerated their AI innovation programmes to use technology to deliver outcomes not thought possible even 12 months ago.

AI is now seen as a key driver of medium-term growth, not just through cost reduction, but by being able to access new revenue potentials through novel customer-centric products and services.

The financial services sector is one of those turning to AI to lead its transformation, and there is significant appetite for change.

AI will open opportunities to spend more value-add time with customers, enhance trust in the sector, and extend market reach.

A recent Forbes survey indicated 65 per cent of senior leaders see AI technologies as having a positive impact on their future business.

Perhaps unsurprisingly, the areas of immediate focus are achieving back-office efficiencies such as intelligent reporting, fraud detection, and automation of onboarding processes. 

However, with increasing confidence spreading throughout the sector, we are seeing focus turn to customer-facing AI products and services.

This is supported by strong endorsement of an innovative approach by the UK government and the Financial Conduct Authority – most explicitly in a 2022 speech by Jessica Rusu, chief data, information and intelligence officer at the FCA, titled "AI: Moving from fear to trust".

An agent of transformation for an industry that lags behind in digital innovation

Across the financial services landscape, the greatest transformation is set to take place within the UK financial advisory sector.

As a human-centric, relationship-based business, focused on a select (often high-net-worth) market, advisory services have not benefited to the same extent as the retail and investment banks from the significant fintech digital innovations over the past decade.

However, the intelligent, human-like characteristics of AI perfectly align with – and enhance – the needs of the financial advisory service.

Specifically, AI will open opportunities to spend more value-add time with customers, enhance trust in the sector, and extend market reach.

One of the most common frustrations for financial advisers is that they often feel blocked from spending more value-add time with customers by the increasing volumes of repetitive tasks, such as answering simple queries or documentation of investment advice.

Since the start of this year, we have already seen AI taking over and automating these important but routine tasks, as generative AI chatbots equipped with natural language processing capabilities are available 24/7 to provide immediate and personalised responses to customer queries.

As well as optimising efficiency, using such platforms increases the appeal of the advisory sector to a younger generation of digital natives not used to waiting for a human response limited to office hours. 

We have seen projects addressing other important but administrative tasks, including automating call reporting, investment insight production and portfolio balancing using AI technologies.

Investment in these areas will enable firms to grow revenue through a greater number of deeper customer relationships, without increasing costs.

Firms must adopt a transformative AI vision that uses technology as the enabler for colleagues to undertake more meaningful work.

In addition, firms will see retention and colleague satisfaction increase by reducing frustrations and empowering advisers to spend more time with customers.

Enhancing customer confidence and trust is at the foundation of the financial advice service, with failures resulting in life-changing consequences for customers who, for example, may lose their retirement dream. 

The recent introduction of the consumer duty, further strengthening customer protections requiring firms to act to deliver good outcomes, has led to increased interest in AI.

This is perfectly suited to support the real-time monitoring and feedback of good customer outcomes throughout the end-to-end advisory process. 

Automating the repetitive, growing strategic advice 

AI offers the opportunity to automate and scale many of the current manual compliance monitoring tasks, such as reviewing investment advice and monitoring a selection of customer interactions.

Moving to machine-driven holistic reviews across the whole portfolio from manual sampling not only reduces the risk that failures will be missed, but also supports the early identification of more firm-wide trends requiring immediate action.

These can be addressed through specific AI-targeted knowledge management, either through guided learning or specific prompts along the customer journey.

As a result, use of AI technology will transform the role of compliance, risk, and audit colleagues.

Instead of performing backwards-looking manual and repetitive review tasks, they will become strategic advisers, acting with insight to enhance safeguards, shape future policies and foster a strong culture of customer trust and protection.

Closing the advisory gap

The most exciting AI-enabled business transformation within the advisory sector is the opportunity to close the advice gap.

In 2021, research by Open Money identified 26mn people in the UK as needing financial advice but unable or unwilling to pay the current prices.

The potential for AI to transform the future of work for the UK’s financial advisers and the outcome for their customers is immense.

The ability for AI technology, such as robo-advice or personalised investment insights, to make financial advice affordable and accessible to the mass market and effectively close the advice gap was recently acknowledged by the FCA’s chief executive Nikhil Rathi.  

However, concerns still exist around the ‘explainability’ of these models and possibilities for ‘hallucinations’ – the invention of material, or inherent biases in the models that may exclude sections of society.

The entry of new AI advisory products to the market, such as the forthcoming IndexGPT from JPMorgan Chase, will look to address these challenges as well as create new customer opportunities.

Overcoming perceived fears to embrace opportunity

AI is still a newly applied technology and advisers cannot fail to notice the almost daily news stories forecasting massive job losses as a result of AI-driven automation and productivity gains.

This mindset of fear has a real risk of creating widespread disengagement with the AI innovation process, and subsequent challenges adopting and realising the firm-wide and customer benefits from the new tools.

Instead of focusing on cost cutting and productivity gains, firms must adopt a transformative AI vision that uses technology as the enabler for colleagues to undertake more meaningful work.

Alongside innovation, it is important to understand the new risks created by AI and the limitations of the technology.

As recently highlighted by the chair of the Securities and Exchange Commission, AI could result in significant market instability as a result of ‘herding’, where similar models across firms all make the same investment decisions based on similar data.

Other concerns include modelling biases, data privacy, and ability to interrogate decision making.

These controls and oversight will most likely require new AI-based expertise, not widely available within the traditional financial advisory sector, and therefore require additional investments in the overall operating model. 

The potential for AI to transform the future of work for the UK’s financial advisers and the outcome for their customers is immense.

We are just at the start of the era of AI and it is fascinating to see the delivery of the first innovative products and services across the financial advice sector – enabling humans and technology to work together to create better tomorrows for all.

Todd Sink is general manager at Slalom