AI no substitute for in-person relationships

Artificial intelligence, we are told, will play a key role in the future of the human race. Google DeepMind boss Demis Hassabis and OpenAI chief Sam Altman were among hundreds of leading scientists signing an alarmist open letter warning that the risk of an AI revolution triggering extinction of our species should be taken as seriously as nuclear war and future large-scale pandemics.

According to US think-tank, the Atlantic Council, AI will redefine the future relationship between the world’s two superpowers, China and the US. Palantir, the $30bn US software company which harvests data, enabling battlefield targeting of enemy tanks among other applications, says its digital armoury is already being used by Ukraine to prevent the nation’s destruction by Moscow.

A generation of tech-led start-ups springing up in the Ukrainian cities of Kyiv, Odesa and Zaporizhzhia is similarly turning peace-time technology to military use, with the help of AI.

Role in wealth

Wealth managers are also conducting advanced research to transform business models with the help of generative AI. What is not yet crystallised is the nature of these changes.

Those analysing banks and wealth managers even believe the technology could sound the death-knell for the adviser-led model. Clients feeding equity and bond holdings into a predictive channel, such as Chat GPT, could potentially arrive to meet their relationship managers with a fully-analysed portfolio, plus a set of talking points about risks and opportunities, which the bank is missing.

“Such a scenario should scare the pants off any adviser,” warns Doug Fritz, founder of US wealthtech consultancy F2 Strategy.

The main issue currently dividing these analysts is the very purpose of the wealth management industry; one wing insists it is to provide a luxury brand-inspired customer experience, with all-singing high-tech solutions allowing a family to break down its wealth at any time of day or night. This school is the one in the ascendancy, typified by its cheerleader, Seb Dovey, one of the best-known independent wealth consultants. It envisages private banking forging a new route, based on managing data to keep clients happy, with AI increasingly part of the data gathering toolkit.

“The future of the industry is around how it manages the information of its clients in ways that stretch beyond purely money management,” believes Mr Dovey.

Boosting returns

The rival camp is that of investors, insisting the main purpose of a private bank or wealth manager is to improve clients’ financial health by making them richer, through boosting returns. Swiss banks such as Lombard Odier and Pictet are adhering to this philosophy, believing the days of secret hand-holding and tax-friendly trusts are over, with alpha creation back in fashion.

“There will be a race for the best fully automated investment and trading solutions based on comprehensive historical data,” confirms Sigrid Unseld, CEO of Zurich-based Scilla Consulting and a data architect who has worked on projects for both Credit Suisse and UBS.

AI, she believes, will be combined with data management to significantly boost investment processes, particularly in nascent areas such as environmental, social and governance (ESG) investing, which most banks claim is already a core competency. With new AI-led search techniques being pioneered by Google and Microsoft, clients can expect significant improvements from ESG data harvesting, she says, while acknowledging many unresolved questions around issues including copyright and other legal barriers.

From her conversations with banks, Ms Unseld realises there are just as many wealthy clients for whom investment performance is the Nirvana, as those in love with the digital experience.

This return-focused cohort is made up of different sub-groups, each requiring a specific, tailored asset allocation. “Customised service is key in private banking,” says Ms Unseld, with tech deployed to adjust individual portfolios. AI, according to this view, will be a game-changer in investment, plus the way it is advised and reported.

Despite this philosophical split, there is more agreement on the role which AI will play in making business more efficient and profitable, speeding up compliance procedures and improving adviser productivity, even setting scene for a robo resurgence.

Yet financial services headhunters, who often provide the best barometer of the industry’s direction, remain unconvinced about how much the business model will change.

The biggest demand, they report, is for skilled portfolio managers – with a detailed knowledge of alternative assets including private markets in particular – and advisers able to juggle detail about all the available investments available, distil it and present it to clients.

While the importance of digital strategists is rising, in the space servicing the wealthiest clients, it still does not rival the value of high-touch personal advisers who command billions in assets and in huge demand from bulge-bracket banks, increasingly conscious of the “advice gap” and failing demographics of their model.

Today, troubled technologists are frequently sharing moments of regret when they ponder the AI models they created. In addition, many workers are clearly scared of this next robo revolution, which may marginalise their role. But for private banks, the human relationship – and advisers who facilitate it - remains more critical than ever.

To register for the FT/PWM Innovation in Wealth Management Summit on June 8, please use this link or contact bruna.pascucci@ft.com