The Future of AI in Financial Services and What It Means for Financial Advisors
 By Cammy Smith
May 15, 2020

Artificial Intelligence (AI) has become an integral part to many fast-paced, forward-facing industries, including financial services. AI applications within financial services include risk management, chatbots and automation, fraud prevention and detection, compliance, and algorithmic trading. However, only a minority of firms utilize these technologies, signifying an opportunity for AI expansion within the industry.* We outline a few of the many benefits associated with using AI in financial services.

Improves Efficiency and Productivity

In the past, an indicator of firm success was often its scale of assets. While asset size remains important, it is gradually being overshadowed by the prominence and scale of data. 

The AI application of machine learning, meaning computer programs that access data and learn automatically, is increasingly employed to automate processes including customer service, fraud detection, and credit decision-making. Deloitte Insights report that 39% of AI frontrunners in financial services are freeing up workers to work in more creative capacities by automating certain tasks.** Machine learning not only cuts operating costs by streamlining several tedious processes, it also improves the overall efficiency and productivity of various financial processes.***

Reduces Risk

AI is a powerful tool when it comes to risk management and the overall safety of the financial system. Algorithms can be designed to analyze the history of risk cases and flag potential risk by identifying its early signs. With AI’s immense processing capabilities, the rate of risk and error are considerably diminished. ****

Provides a Competitive Advantage

AI can be leveraged for competitive advantage in multiple respects. For starters, by deploying AI to enhance customer experience, firms optimize retention and focus on tailored customer experiences that set them apart.*** Additionally, firms that have invested in AI initiatives are already set apart from those who lag behind. According to Deloitte Insights, these frontrunners are already experiencing increased revenue and realizing better business outcomes. For example, 44% of AI frontrunners are already pursuing new markets compared to 24% of followers and 8% of starters. **

The value that AI brings to financial services is astronomical––to ignore its importance would be a large misstep for your firm. However, there are obvious concerns associated with AI, one of which is bias.

The Bias Problem

Fairness is essential when it comes to financial decisions such as student loan rates, mortgage rates, credit card applications, and hiring processes. While AI is championed to reduce the bias in such decisions, AI algorithms are susceptible to the biases of their own creators. Olga Russakovsky, co-founder of the AI4ALL foundation whose mission is to increase diversity and inclusion within AI, confirms that a root cause for bias is in the algorithms themselves.***** If the algorithms used to process data are subject to bias, then they could negatively impact customer experience and unintentionally create wider race and gender disparities. 

A great way to combat bias, as Russakovsky recommends, is to diversify the homogenous pool of AI researchers. Researchers can also use various statistical techniques to resample or recalibrate data to reduce bias to existing data sets.****** These are just a few suggestions to eradicate bias when using AI.

Main Takeaways

So why is this all so important for financial advisors? To put it simply, AI is becoming the future of financial services; while it may be daunting to incorporate these practices into your business strategy, you will fall behind if you don’t. However, it is important to acknowledge its associated shortcomings and account for them before completely transforming your business model. 

Here are a three recommendations on the outset:

1. Seek an Expert
Find tech solutions and/or a back office partner that employs AI to save on costs, increase productivity, and reduce risk.

2. Be Informed
Know what is going on and how investment management will change in the future.

3. Optimize and Prioritize Accordingly
Learn how to utilize AI to automate your repeatable processes so you and your team can spend more time with clients and have a better client experience.




**** = Medium's Toward Data Science,  The Growing Impact of AI in Financial Services: Six Examples
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