How AI is reshaping wealth management and financial planning

The Herald Scotland

18 hours ago

These tools provide rapid responses day and night to improve the client experience and free staff for more complex interactions. AI can be used to record and accurately summarise meetings to improve record keeping. Virtual assistants can offer personalised financial insights such as suggesting contributions to tax-efficient accounts.
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It has reached the point where these interactions feel surprisingly human, but high-value clients still expect personal contact and the emotional connection with relationship managers and trusted advisers.
Beyond customer service, AI is being used to enhance investment decision-making.
Some investment managers have long used algorithms to detect market patterns, but AI can speed the process by learning in real time. It is excellent at sifting through vast amounts of data to identify investment opportunities or risks faster than humans could.
AI is particularly useful in areas where large amounts of data can be analysed to gain insights, such as factor investing, where it can rapidly refine models to focus on those factors adding value in the prevailing market conditions.
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It can also be used to analyse satellite imagery, weather trends, credit card transactions and social media to gain insight into company performance before earnings reports are published. And it is being increasingly used in the insurance industry to analyse claims experience and dynamically amend premium levels.
However, these tools are not without their problems. AI systems can become opaque making it difficult to explain decisions. There is also the risk that an algorithm performs well on historical data but poorly in live markets.
Depending on the data it is trained on AI might have inbuilt biases that may be hard to spot and guard against. While the industry regulators are keen to encourage growth, they are keeping a close eye on developments to ensure clients, particularly those that might be in vulnerable circumstances, are not disadvantaged.
Risk management is another area where AI is proving useful. Algorithms can monitor transactions in real-time, flagging up anything unusual or unexpected. AI is also used for stress testing investments by simulating thousands of market scenarios to assess potential losses under different conditions, which highlight to clients a range of possible outcomes for their investment portfolios.
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In compliance, AI tools can scan communications and transactions to detect potential insider trading, market abuse and rule breaches. This reduces regulatory risk and lowers compliance costs.
Fraud detection has also improved, with AI able to spot anomalies in transaction patterns that might indicate suspicious activity. These systems continuously learn from new threats, making them more effective over time.
Despite the rise of AI, human expertise remains essential. The most effective AI systems known as 'augmented intelligence' combine AI with human judgment with the latter retaining ultimate decision-making responsibility.
Moreover, AI can assist with behavioural coaching, helping advisers understand client biases or emotional triggers, and tailor communications accordingly.
AI is not necessarily replacing financial services personnel, but it is changing their roles. As technology handles more data-heavy and repetitive tasks, humans can focus on strategic thinking, client relationships, and nuanced judgment. Those firms that integrate AI well will enjoy a competitive advantage.
David Thomson is chief investment officer of VWM Wealth.