AI in financial services presents opportunities, challenges

Image of a futuristic robot in the pose of Rodin's "The Thinker" seated in front of many electronic displays.

By Susan Rupe

The rise of technology in the financial services industry presents opportunities as well as challenges. Experts on financial technology and policy discussed how artificial intelligence could influence financial services during a recent American College webinar.

Companies are experimenting with or using AI in portfolio optimization, tax analysis, even relationship management, said Azish Filabi, executive director of The American College Maguire Center for Ethics in Financial Service. “Generative AI has a lot of potential for helping with client interactions. But generative AI is not being used consistently,” she said. “There is still a lot of work that needs to be done to integrate it into the industry.”

Filabi said the industry “is still in the learning phase” where AI is concerned.

She compared the use of AI in financial services to the introduction of the pocket calculator decades ago. “Calculators at one point changed the way math was taught,” she said. “But AI tools have a lack of consistent answers, raising questions around accountability and liability. AI creates a whole new category of legal risk because you don’t get consistent results from AI. The technology doesn’t necessarily tell you why the answer is different one time than it is another.”

In July, the Securities and Exchange Commission proposed new rules that would require broker/dealers and investment advisors to take certain steps to address conflicts of interest associated with their use of predictive data analytics and similar technologies to interact with investors. The SEC said the goal of these rules is to prevent firms from placing their interests ahead of investors’ interests.

Early days of AI

“So far, we’ve seen early days on AI’s effect on the retirement environment,” said David Blanchett, managing director and head of retirement research at PGIM DC Solutions and an adjunct professor at The American College. As an example, he cited AI tools that help individuals figure out the best place to retire.

“Generative AI can help people figure out things they couldn’t figure out otherwise,” he said. “Generative AI can help us create solutions where people who couldn’t get a strategy can now get a quality financial plan.”

Consumer perceptions on how to leverage AI will change over time, Blanchett said. “Young people love it; old people are terrified of it.”

Humans are still important

“Having a human in the loop is important,” but consumers are increasingly seeking a mobile-first experience, said Christian Maynard-Philipp, founder and CEO of Pattern, a technology platform.

Pattern is a digital wealth management planner that matches each client with an advisory team. The client can message the team on demand, use digital tools and schedule calls with their team all via the app.

“Around the time of COVID-19, we noticed there was this first generation of wealth technology,” she said. “But there was so much more we could do with tech. We saw that folks wanted a human in the loop but wanted a digital-first experience.”

AI can be used for good or bad

AI presents a number of opportunities in the advisor/client relationship, said Vincente Martinez, general counsel at North American Securities Administrators Association.

“AI would be very helpful to help identify patterns; for example, it could detect that someone had made a large withdrawal and had never made a withdrawal of that size before. So AI could help detect financial exploitation. It also could keep tabs on a portfolio to the extent that a human advisor cannot. But then the question becomes, what to do with that information.

“All these things are tools that can be used for good or bad.”

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.