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Instead of replacing advisors, AI can augment them, predicting client needs and prompting advisors to reach out with timely solutions

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Artificial intelligence (AI) is seen as a game-changing technology across many sectors – including wealth management. How might it reshape the work of financial advisors?

Rather than replacing advisors, as some fear, AI and related technologies stand to make advisors better at their jobs.

“We like to think of it as creating a hybrid advisor,” says Davyde Wachell, co-founder and chief executive officer of Responsive in Vancouver, which develops advanced data-analytics tools for the wealth-management industry.

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“That’s an advisor, backed by automation and assisted by research and insight tools, who can deliver more personalized service to clients. This is wealth management 2.0,” he says.

AI involves aggregating and organizing massive amounts of data – in many cases using cloud-based technologies. That allows for rapid analysis.

But AI is about more than analyzing large datasets. It’s about machines, powered by advanced algorithms, that can learn from the data. Based on that learning, AI can draw conclusions and make predictions, including those about the financial behaviour of clients that advisors would likely never uncover.

“We’ve now created a very large and deep database of financial-planning information, which allows us to see trends and patterns,” says Gaetan Ruest, vice-president of data science and advanced analytics at IGM Financial Inc. in Winnipeg. “We can then identify where we believe some trends are beneficial and where we believe there are opportunities for individual clients to improve.”

Mr. Ruest says advanced analytics have given companies like IGM – the parent of Investors Group Inc., Mackenzie Financial Corp. and Investment Planning Counsel Inc. – an advantage. They’ve been working with clients for decades, so they already have much rich data on financial-planning outcomes.

“Telling clients they’re doing well isn’t good enough anymore,” Mr. Ruest says. “You have to tell them specifically how much better they’re doing because of their engagement with you, as an advisor, and show them where they could make changes to improve their financial well-being even more.”

Despite the promise of AI, most advances so far across the sector have focused on automating administrative tasks in a wealth-management office. That doesn’t directly enhance clients’ experiences, Mr. Wachell says.

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Yet, digitizing and automating on-boarding for clients does matter, he says. It helps “get advisors to a place where they can spend more time with clients on value-added activities.”

Firms like Toronto-based PureFacts Financial Solutions Inc., which provides technology tools for the wealth-management industry, help manage fees and billing for clients with machine learning. Its technology looks for anomalies and brings these potential trouble spots to a wealth-management firm’s attention.

“Then, it will observe how the administrator fixes the error, learn from that and start fixing similar problems in the future on its own,” says Victor Skrylev, vice-president of product at PureFacts.

Automation of administrative duties and other tasks like automatic portfolio-rebalancing, which are at the core of robo-advisor firms, is still spreading across the industry. That’s only a small fraction of the potential of AI and is wealth management 1.0, Mr. Wachell says.

Wealth management 2.0 involves advisors being able to leverage real-time data about clients’ finances and then have AI predict events that could affect portfolios and financial plans.

“It’s the ability to understand financial behaviour at a very granular and rich level quickly,” he says.

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For example, Mr. Wachell says AI can potentially predict that a client is about to get a raise or have a child in the near future based on analysis of the individual’s and other similar clients’ past financial data.

AI-driven software could then prompt an advisor to contact a client to discuss updating his or her portfolio for this potential major life event.

Although AI holds tremendous promise, advisors still must be mindful of not encroaching too much on clients’ lives.

Indeed, the technology could be used in a “creepy manner” clients may not appreciate, says Adam Payne, wealth counsellor with Kinsted Wealth in Calgary, which works with Responsive.

“Clients would definitely need to opt into this kind of service, and you’d have to spell out how you’re using it,” Mr. Payne says.

So far, Kinsted Wealth has only started automating administrative tasks and digitizing abundant client paperwork using machine-learning software. The firm is figuring out AI’s value. Mr. Payne says it’s not only a matter of determining how AI can help, but ensuring it will actually work.

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“The one struggle with humans interacting with AI is the idea of garbage in/garbage out,” Mr. Payne says.

As AI continues to evolve, advisory firms are exploring ways to use it. Those that don’t will find themselves at a disadvantage in the near future, Mr. Skrylev says.

“AI won’t replace all advisors,” he says, “but it will replace those that don’t use AI.”

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