‘Advisers should review their tech in preparation for AI’

AI could have a major impact on the future of the financial advice industry, especially in the context of engaging with Gen Z clients who have grown up with technology, and when looking ahead to the emergence of the Alpha and Beta generations.

But making the right decisions about how AI is used, and what it is used for, is crucial if advisers are to maximise its potential to improve their efficiency and the service they provide.

Every week there are news reports suggesting that AI will be the answer to many things.

It is true that it will shape the future of the financial advice sector and allow IFAs to work more efficiently, service more clients, and enhance the standard of advice they provide.

However, it’s important to take a step back and consider important questions about what AI can do and what it can’t, at least for the foreseeable future.

Complex technology

It was interesting to note that at the Artificial Intelligence in Financial Advice (#AIFA24) conference in July many delegates spoke about how the format of advice will change in the future.

The crux of the debate was how best to use technology to engage with younger generations, while at the same time balancing this with the desire for face-to-face, personal interaction which is still preferred by many high net worth and older clients.

Even for those clients that are reluctant to adopt technology AI will help by allowing IFAs to free up more time for face-to-face meetings.

All of this touches on a wider debate around how to use technology in the best way.

Here’s an example:

Many IFAs are currently using plug-in or bolt-on software solutions as they strive to meet the needs of all clients from all generations, and to do so as efficiently as possible.

However, this often involves creating a more complex and difficult to manage platform.

It’s much better to start with a clean data set if you want to maximise the power of available technology

In this context technology may solve one or two short-term problems, but create bigger ones in the longer term.

A better solution – one might argue – is to create a new platform, which removes the needs for plug-ins and bolt-ons.

This highlights the importance of making smart, human decisions about how technology is used.

Clean data

It’s a similar scenario when looking at the future of AI.

Everyone knows that AI can store, manage and analyse huge volumes of data – so at first glance it might not appear important to manage or clean data which will then be stored and processed.

The misconception here is thinking that AI is so powerful that it can handle any volume of data, so it doesn’t matter how much or what type of data is put into a platform.

However, the old adage of ‘garbage in, garbage out’ still applies because it’s much better to start with a clean data set if you want to maximise the power of available technology.

It makes processing and analysing much more efficient and effective – especially in terms of traceability regarding compliance or regulatory issues.

Addressing this fundamental issue of the systems and platforms that advisers use is the starting point

There’s also an ESG angle to consider in this context because storing more data than you need has obvious implications regarding the carbon footprint created by data centre power usage.

Right now there are financial advisers we work with who have already addressed this issue by switching to a platform that’s specifically designed to make the process of gathering, cleaning and managing data much more efficient.

However, there are many more advisers who haven’t yet taken this route.

We’re aware of some advisers using up to 19 different systems from several providers, and this multiple ‘plug in’ approach inevitably makes it much more difficult to create clean data to begin with.

Addressing this fundamental issue of the systems and platforms that advisers use is the starting point if they want to create clean data sets which will then allow them to use AI to its full potential.

AI technology is a tool that will get ever more powerful. It has the potential to free up IFAs so they can provide better advice, increase the number of clients they can serve from hundreds to potentially tens of thousands, and at the same ensure they remain fully compliant with enhanced levels of traceability for every transaction.

We’re already working with early-adopters in this field, so we know from experience that the IFAs who will gain most from AI will be those who make smart decisions and use its power wisely.

David Stamp is founder of Centology