In Practice May 23, 2018

Advisers Believe AI Will Create Competitive Advantage

They plan on using it to better understand clients’ needs.

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Two-thirds of registered investment advisers (RIAs) and fee-based advisers believe Artificial Intelligence (AI) will give them a competitive advantage, a survey by Nationwide Advisory Solutions found. Among the 33% who are early adopters, 94% of this group believe AI gives them a competitive advantage.

The way advisers are using AI is to transform every aspect of the customer experience, attract a new category of future clients and open the door to a new universe of products and solutions.

“Once the exclusive domain of large institutions with deep pockets, and most recently utilized by consumer giants such as Amazon and Apple to ensure ease of use and customer satisfaction, RIAs and fee-based advisers are now adopting Artificial Intelligence to enhance the human connection with clients—and gain an edge over the competition,” says Craig Hawley, head of Nationwide Advisory Solutions. “RIAs and fee-based advisers are leveraging AI to understand clients, predict their priorities and provide holistic financial planning.”

Artificial Intelligence uses advances in machine learning, including refined algorithms, predictive analytics, natural language processing, speech recognition and image recognition to asses big data from disparate sources, evaluate complex problems and help advisers make more accurate decisions. While only 33% of advisers are currently using AI, 51% plan to begin using it or expand their use of it in the next 12 months.

Among the early adopters, 88% began using it in the last 12 months, and 84% plan to expand their use of it in the next 12 months. Thirty-seven percent of the early adopters say their profitability will expand substantially in 2018; by comparison, only 22% of advisers who are not using AI say the same. Thirty-four percent of the early adopters say they are optimistic about the financial outlook for 2018, compared to 26% of the advisers not using AI. Fifteen percent of the early adopters manage more than $250 million in assets, compared to 11% of the advisers not using AI. In addition, 16% of the early adopters earn more than $500,000 a year, compared to 11% of the advisers not using AI.

Among the investors, advisers, and early adopters who believe that Artificial Intelligence will improve the adviser/investor relationship, all three groups say that the top ways AI will improve this relationship include increasing accessibility and affordability of financial planning (46%, 42% and 40%), and making accurate predictions about clients’ future needs and behavior (39%, 38% and 38%).

Thirty-seven percent of RIAs and fee-based advisers, and 50% of early adopters say AI will help them protect clients’ assets against market risk. In addition, 35% and 48%, respectively, say AI will help them understand clients’ current needs and behaviors, clients future needs and behavior (33% and 41%) and to provide more personalized, holistic financial planning (27% and 36%).

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However, 54% of investors say there are cyber security risks associated with their sharing personal and financial information.

The Harris Poll conducted the online survey of more than 1,700 advisers for Nationwide Advisory Solutions in January and February.

 

In Practice May 23, 2018

Financial Services Firms Are Lagging on Data Technology

Firms have made strides in the previous decade in terms of adopting self-service, web-based solutions—but the existing “fixed decision tree” approach is not sufficient for the next evolution in client service.

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Mike Capone is the CEO of a company called Qlik, which provides “next-generation data analytics solutions” to a wide variety of clients, including U.S. and global financial services firms.

Capone gave an informative talk to open the second day of the DataDisrupt 2018 conference, entitled “the Rise of Augmented Analytics and Data Literacy in Financial Services,” and warned in stark terms that the financial services industry has broadly failed to take advantage of emerging big data technology.

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“Financial services firms have made real strides in the previous decade in terms of adopting self-service, web-based client solutions,” Capone noted. “But I am here to warn you that the old fixed decision tree approach is not sufficient for the next evolution in client service that is already taking hold elsewhere in the economy.”

As Capone explained, many financial services firms (and others) have turned to business intelligence vendors to make sense of the data they hold, but too often even these providers rely on “outdated query-based analysis that restricts people to a linear exploration within just a partial and fixed view of that data.”

“As we see the world at Qlik, the next generation of business intelligence analytics coming to market are so much more fluid and open-ended in terms of what data you can plug in, and then how you can corral and control that data,” Capone said. “We call this the ‘associative data difference,’ and it is about allowing the data to speak to you in evolving and dynamic ways.”

Capone repeatedly stressed that financial services providers are not by any means ahead of the curve in terms of embracing the real power of big data.

“Trading professionals have embraced this next-generation thinking, but otherwise financial services data is still far too siloed and in a word, disrupted,” Capone said. “In that sense, now is the time to make a plan and make smart investments of time and resources in new capabilities. You will be able to better serve clients and be successful.”

According to Capone, empowered organizations are already at every point of their business using data to boost operational and strategic performance.

“That is the reality of the ongoing digital transformation of the economy, and there are going to be winners and losers,” he added. “I really believe that data is the foundation of the new economy, and that making new and profound data associations is what skilled and successful companies will do.  Companies that can be predictive and nimble will be empowered. They can shift and reimagine new ways of doing things. Especially in financial services, you have more opportunity than many other industries, I would say.”

Of course there are challenges to talk about as well, Capone said.

“First and foremost, people are not really data literate, either your staff or your clients,” he said. “Not everyone will become a data scientist, of course, but your people need to have the analytical ability to understand and leverage data. To this day, so many people are just so uncomfortable working directly with data. It will be a lasting challenge.”

Overall, Capone’s advice to financial services professionals and leaders is to consider making real investment in this area.

“The winners will be able to put the right data and the necessary skills into the hands of your people on the ground,” he concluded. “Both the leadership and those people who work directly with your customers—everyone needs to improve their data literacy.”

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