AI is an Asset for Advisors, not a Replacement for Them
As soon as machines appeared in the industrial workplace, anxiety spread. Factory workers started to express concerns (sometimes engaging in fierce protests) that their jobs would be taken away by these new non-human competitors.
Fast forward. Today, with artificial intelligence (AI) becoming more and more sophisticated and refined, white collar employees have also started to worry about being replaced.
Including investment advisors.
If you’re an advisor, you’ve likely heard that AI is getting smarter and better at predicting markets; you may even fear that you will be replaced in the near future. While AI is likely to start influencing your profession, it won’t be in the way most advisors fear.
AI Offers Powerful Analytic Capabilities to Validate Your Strategy
Let’s start with AI’s most obvious strength. No one can deny that AI can calculate far more data and probabilities faster than any human could ever hope to crunch numbers. For example, we have trained Laplace Insight’s AI platform to analyze more than 100,000 past financial events by using machine learning algorithms specially developed for financial markets. This means that when it produces predictive analytics, the AI “remembers” all similar historical scenarios to identify meaningful past trends and to recognize present day market patterns.
An AI system then makes a call, like a human advisor, on what is likely to happen in the market over the short term but does so exclusively based on an emotion-free assessment of the data it reviews. What concerns RIAs is that those predictions appear more valid (and likely are) because they’re produced by a rigorous analytical process minus natural human biases that can skew judgment.
However, AI is not a crystal ball and is not the end-all and be-all of a financial advisory relationship. It simply makes predictions that a perfectly informed, statistically gifted advisor could also make: at the heart of AI systems, it’s all about tapping into complex probabilities, not one simple, human-generated certainty.
Even today, many advisors are already using AI now to verify their own calls. To paraphrase one of our clients: “If your platform agrees with me, I’m way more confident about my prediction. If it disagrees, I know I need to double-check.”
AI is an Asset That Frees Your Time to Focus on Your Clients
For any advisor, doing your homework properly takes time. Research, news, international markets, thousands of securities to follow, thousands of theses to review, so many experts with so many (often contradictory) opinions—how can you possibly always be up to speed?
You’re not a research analyst. You’re an investment advisor. Servicing your clients is your focus.
The purpose of AI in finance is precisely to give you back time to spend with your clients by removing the time-consuming process of having to undertake detailed research and analysis.
This does not mean, however, that you needn’t trouble yourself with the markets and just follow what your AI “overlord” commands. AI should not and will not replace you. AI cannot do all the work for you that you need to do as a professional advisor.
But smart advisors will be better able to accomplish all of their duties by using AI to help them stay on top of market risks and opportunities, leaving more time to fulfill client needs, and at the end of the day, that is the true end goal for any financial advisor.
AI Separates Facts from Feelings in Finding and Analyzing Patterns
The human brain is one of nature’s most amazing creations, but dealing with huge volumes of abstract, complex, chaotic data is not what it was designed for.
And yet, that is precisely the kind of information that you, as an advisor, are required to analyze to understand a complicated, layered, constantly changing, and barely predictable investment marketplace.
The twists and unexpected turns of the market inevitably worry all investment advisors at some point in their careers. After all, if you make the wrong call, it’s not just your wallet that will take the hit; your client’s portfolios, and their trust in you, will also suffer. There’s a lot at stake in what you decide and what you recommend.
Adding to that pressure is another type of fear. People are instinctively afraid of what they do not understand and cannot anticipate. By their very nature, financial markets cannot be fully anticipated. This fear, or perhaps mistrust, is apparent in investors’ behaviour regarding bitcoin: A lot of interest because of the potential gains, but also a lot of hesitation because it’s all speculation and extreme volatility. Those who buy on the bitcoin dip do so mostly in hope that it will go back up and stay up.
Relying on hope that your investment will pay off is not a wise strategy. Neither is succumbing to fears of proven and powerful investment analysis tools.
This is where AI becomes particularly useful because it is not affected by human hopes, fears, pride, over-thinking or under-thinking. If a top-tier AI algorithm makes what appears to be an aggressive recommendation, rest assured that there was an exhaustive data-based reflection behind its choice; it was not powered by aggression.
The same thing occurs when sophisticated AI tells you to sell what have historically been well-performing holdings. You may be tempted to hang on to your favourites “just a bit more” in hope of even more profit. But that hope tends to blind us to signals we might have otherwise been able to see.
Make no mistake. We’re not saying that emotions are a liability for investment advisors—in fact, emotional intelligence is essential to the core work of an investment advisor: advising clients. But the insight we want to emphasize is that these emotional strengths were not designed for complex, statistically-objective data analyses. They simply have a different function.
AI Supports Your Client Relationships
At Laplace Insights, we think AI will never replace professional investment advisors, for simple reasons: Machines are a long way off from understanding people. And people may be even further from forming high-trust relationships with machines.
Earlier on, we argued that people don’t interpret complex data particularly well. They can, however, read and connect with other people extremely well precisely because emotions endow us with a capacity for empathy, sympathy and for sharing experiences, which let us relate to one another.
And this is what being an advisor is really all about: knowing and understanding your clients and using your expertise and professional perspective to illuminate things they may not even realize about themselves. Advisors help clients gain clarity on what they really need and want, on what their goals really are and over which time period, and help them stay on track financially through the best and worst of times.
When people struggle with fear or over-excitement related to their finances, it’s other people—trusted professionals—that help steady them and regain perspective. Not computer programs.
At the heart of the advisor-client relationship is trust and emotional intelligence, not stock trades. Predictive AI will not and cannot replace advisors. However, predictive AI provides advisors a powerful new toolset for portfolio management, dynamic asset allocation and ultimately growing their business. It is far better at helping you build and preserve trust than it can ever be at understanding what really drives your clients and how to respond to them.