duction of artificial intelligence in financial consulting
Barry Copeland
14 / March / 18
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Introduction of artificial intelligence in financial consulting
Think about what a financial consultant is, and you're likely to picture a middle-aged man in a business suit that loves spreadsheets.
But a new generation of consumers might represent a consultant in the form of a digital chat room bot driven by artificial intelligence with a penchant for smiley faces.
The traditional world of consulting is now swarming with a new wave of digital financial services using artificial intelligence, which claim to be able to provide clients with personal recommendations without human intervention.
According to experts, these "consultants" appeared as a solution to the "advice gap" problem of small clients, after the ban on charging fees for financial consultations.
Advising many clients with small investment portfolios has become much less profitable and more costly than advising large clients. As a result, a gap was created in the personal financial consulting market.
A gap in the private financial consulting market.
Nowadays, electronic financial consultants or robo-advisors exist in the form of chat bots, which ask questions about your financial solutions. Some people believe that this technology will evolve further, which may have ambiguous implications for traditional financial consultants.
But are clients really willing to consult with the robot?
Over the past 10 years, financial consulting has experienced a serious shock. In 2013, the British financial regulator FCA conducted an inspection of quality and transparency of financial services, called Retail Distribution Review (RDR). It concerned investment products (including insurance policies, pension plans, funds and other investment schemes) offered by financial consultants to retail clients.
As a result, the UK (and a number of European countries) banned the fees of financial consultants in 2013, and introduced requirements for disclosure of the cost of financial consulting and training of financial consultants.
This may have improved the quality of financial advice, but it has also reduced the number of financial advisers from over 40,000 in 2011 to 26,000 at present.
Large banks have left the personal financial consulting market (although the current success of robot-educators is now tempting some to return), and those left behind, high regulatory costs have forced them to focus on the wealthiest and most profitable clients and to abandon the mass market.
Proponents of 'artificial intelligence' argue that AI can help close this 'consultancy gap'.
Other options for financial consulting using AI.
A different approach was taken by the regulated consulting firm Multiply, which received approval from the FCA for its July 2019 application. The iOS version is already available, and the Android version is expected next year.
Multiply, more than traditional financial advisory firms, targets young clients - workers in their twenties, thirties and forties - who "have just found themselves on top of their cash flow," as Vivek Madlani, CEO, puts it.
Once the users have downloaded the application, they go through a procedure similar to the initial financial advice from a traditional consultant.
"We assess risk attitudes and the ability to incur and offset losses from the investment".
Madlani says that young Multiply clients are usually the most interested in saving for their first home, but many are also interested in pension programs and investments. These are the challenges where the benefits of the application's "engine" come into play.
In the future, Multiply aims to offer other financial products, including mortgage loans and income protection insurance policies.
By providing financial advisory services on the mass market, Multiply also promises to do so "for free" - although in reality things are not as good as they sound.
The company uses what consultants refer to as a 'contingent charging model' - recommendations are provided free of charge, but the user is charged a fee when fulfilling these recommendations. That is, Multiply gets paid for the services if the clients follow their recommendations.
Madlani says that it is clearly explained to application users that there are limits to what artificial intelligence can do to make good recommendations.
"Honestly, there are limits beyond which we don't want to take risks, such as certain types of defined benefit programs or buying annuities. I think that the human factor should be involved in such decisions".
About 25% of those who use the application are not considered suitable investors for various reasons, for example, if they have high debt levels. However, at the moment Multiply does not pass on details of their financial situation to any outside consultants, such as debt charities.
Ramiya Joseph, the founder and CEO of Pefin, which claims to be the number one financial adviser in the world, is the most optimistic about the possibilities of technology.
This American company does not operate in the UK, although it is negotiating with potential partners to address this issue. Joseph believes that there are only a few small areas of personal finance that AI will not be able to deal with, but in her opinion, this will not necessarily mean the end of human consultants.
"AI can complement human consultants and give them the opportunity to focus more on client relationships as well as more specialized client financial needs such as complex trust and business structures.
Clients need voice communication.
Consulting using AI is currently limited to chat bots, but some experts predict that clients will soon be able to actually communicate with robotic drivers using smart speakers.
"If it is now possible to communicate via the chat interface, the next big step is to add voice recognition and voice typing," says Firt of Wealth Wizards.
He adds that converting spoken words into written text has an advantage for digital financial advisers, because if everything a client says can be recorded, that information can be stored and analyzed.
Joseph agrees: "In five to seven years' time, consumers will be able to receive mass automated advice through an online service with voice recognition technology.
She mentioned Alexa's smart assistant from Amazon and Siri from Apple as examples of how the public has come to perceive communication with the machine.
