AI In Wealth Management and Financial Planning

Would you trust AI to give you investment advice?

To many customers of banks and fintech businesses, the answer is an absolute “yes.” Millions already have AI advising them on investment opportunities, managing investment portfolios, and even planning retirement.

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That’s how important AI in wealth management and financial planning has become. In this post, we’re going to explain how this technology is making a difference and becoming a source of competitive advantage in financial services.

AI In Wealth Management and Financial Planning Industries: The Current State of the Industry

The wealth management industry is going through some major transformations. We’ve got an industry that deals with three major pressures:

• Outdated practices
• Tech-savvy customers
• Competition from fintech companies

Let’s start with the practices.

For far too long, financial advisors and planners have relied on century-old methods that frustrate customers and make them lose against more innovative counterparts using fintech products.

One obvious example of outdated practices is using human advisors for all operations. This means that any financial planning-related matters require face-to-face meetings, lots of paperwork, and waiting. These practices may have worked for previous generations, but it’s Millennials who are ready to take the stage as the world’s wealthiest generation.

Millennial customers — currently people between 25 and 40 years of age — are a generation that loves technology. They want quick access to their financial resources, the ability to make fast investment decisions, and more exciting and secure technology to take advantage of.

Surveys have shown that Millennials are twice as likely (51% vs 24%) to consider a robotic, i.e. AI-enabled financial advisor than previous generations.

And the next thing is the rising competition from fintech companies (many of which are founded by Millennials). Fintech product development involves a wide use of the latest technology to deliver financial services, which is much more appealing to Millennials than traditional methods.

The most popular fintech examples are:

• Money transfer software
• Personal finance apps
• Stock trading platforms
• Robot financial advisors
• Alternative money lending apps

These fintech products are super popular already and drive multi-million-dollar markets. Their convenience and freedom to access and manage finances help them to gain as many users as ever.

But what’s the technology behind this tremendous growth? And, what can satisfy the needs of tech-savvy customers?

The answer: AI.

AI is behind many innovations in wealth management and financial planning products, and both businesses and customers appreciate the efficiency, effectiveness, and ease of use it brings to the table.

How AI Changes Wealth Management and Financial Planning

The traditional wealth management and financial planning models are very labor-intensive and led to increased AI automation. Here are the main wealth management trends  which show AI automation is changing the industry.

1. More Personalized Portfolio Analysis Reports

A financial portfolio analysis report is a document that outlines the performance of the current investments and provides recommendations and insights about potential ones. The report should give a good understanding of a client’s financial profile as an investor.

Creating personalized investment insights and recommendations is a challenging task that requires tons of research and analysis work. AI for wealth management can help generate portfolio analysis reports and personalized investment tips within minutes.

An AI for wealth management algorithm can:

• Analyze a digital version of a portfolio to provide a summary using diverse visuals. It becomes easier for the client to understand their financial health.
• Use predictive forecasting to make predictions about long-term price movements and potential investment opportunity evaluations.
• Process relevant research reports on government and other reliable websites to extract the most useful insights and investment opportunities.
• Apply social media analytics to provide sentiment analysis and show the most popular investment topics, trends, event highlights, and alerts.

2. Automated Investment Management

Want to manage your finances and investments the traditional way? Get a manager and run everything through them. But there’s a problem — people want to make investment decisions themselves. 

In fact, 6 out of 10 Millennials think they understand their finances and investments as well as a professional advisor. That’s a testament to AI in investment management, which made all the financial data easily available through apps.

A robo-advisor collects information about a client’s financial situation, processes relevant financial data, and makes investment decisions and monitors their performance. 

Wells Fargo’s Intuitive Investor is an example of this technology. The user provides their investment goals and recommendations, and the app generates a portfolio within seconds. It handles daily tasks like rebalancing, monitoring, and updating — a good example of automation in wealth management.

More apps like Intuitive Investor are expected to arrive at the market soon. As more financial institutions realize the importance of personalized service and the role of AI in asset management, we should see more automated investors appear soon.

3. Timely, Personalized Assistance with Chatbots

Chatbots are apps that simulate conversations with human operators. Conversational chatbot technology is already common in the banking and financial industry, and is gaining momentum despite the pandemic.

Business Insider outlined these important benefits that drive investment in chatbots right now.

All these benefits point to one overarching theme: personalization. Chatbot automation makes financial services readily available when and how customers want them.

The most functional chatbots like giosg are built with Natural Language Processing (NLP). They have the capabilities to recognize user messages and provide them with complex answers, which makes them ready for using AI for asset management and financial planning purposes.

In this regard, an AI chatbot can act as a personal assistant that:

• Recommend relevant financial products 
• Provides 24/7 customer support to clients of a bank, app, or fintech company
• Shares stock prices and news based on portfolio goals, performance, and balance
• Notify about relevant investment opportunities based on the user’s interests and portfolio goals

So, chatbots aren’t a major force of AI for wealth management at this point (they get more credit for chatbot marketing in eCommerce), but they are becoming a legit tool to improve client experience.

4. Sentiment Analysis for Better Stock Investment Decisions

The analysis of reactions in news can help predict developments in the stock market and make better investment decisions. NLP technology does it with sentiment analysis.

In essence, sentiment analysis interprets and classifies emotions within different sources of text data (news articles, reports, — any kind of online textual content). If you use an AI NLP tool to analyze the sentiment in news and social media, you can see how people react to events influencing stock markets (this is also supported by scholarly research). 

For example, if the tool detects negative sentiment towards a company, it might predict that its stock prices will go down (and vice versa). Since many investors, business leaders, and other stock market players often share their opinions and thoughts on social media and blogs, learning them can be helpful to make better decisions.

Examples of such tools are all over the place. VanEck, a New York-based investment management company, launched a social media sentiment exchange traded fund (ETF) last month. The tool received a lot of attention, including from internet celebrities like Dave Portnoy.

5. Advice on Savings, Investments, and Pensions from AI Advisors

What comes to your mind when you hear the words “financial advisor?” Chances are, you think of a middle-aged person in a suit who loves working in spreadsheets and tables. This traditional notion of advisory services is now slowly changing to include AI-enabled apps.

Pefin and MyEva are some of the best examples of this technology.

Pefin is an AI financial advisor that analyzes taxes, market, investment risks, financial account balances and trends, changes in spending patterns, property taxes, inflation, college tuition costs, mortgage rates, and many other factors.

The app provides financial advice based on an AI algorithm that learns about the financial health, preferences, and goals of the user. So, no two people can receive the same financial tip from Pefin. 

Users receive regular financial reports to evaluate their financial condition. Here’s a page from an annual financial report sample for a couple, as generated by Pefin.

MyEva is another AI financial advisor that has been getting some attention from the media. The app relies on an AI algorithm to provide personalized advice on investments, retirement, or savings through a chatbot.

The creators of MyEva say the app was designed to help employers assist with the financial well-being of their employees and reduce a lot of related stress. That’s why MyEva is suited for use on a continuous basis.

Here’s how MyEva works. 

The user:

• Takes a personalized financial health check by answering several chatbot questions about their goals, views on potential investments, and priorities.
• Creates a custom financial plan based on the information shared with the chatbot.
• Receives personalized recommendations on reducing spending, increasing savings, and investing in lucrative opportunities.

The journey doesn’t end there. MyEva’s users can review their financial health and goal progress inside the app, on demand. Also, they can connect with a human advisor by booking an appointment via the chatbot. This way, AI in financial planning puts people in charge of all important operations.

AI for Wealth Management and Financial Planning: Summary

The needs of customers in wealthtech (particularly wealth management and financial planning) are changing. They would like to be in full control of their finances, savings, and investments, and make quick decisions without having to meet with an advisor.

AI is behind many innovations created to meet these changing needs. From more personalized wealth management to advice on pensions, complex algorithms process tons of data to give people helpful insights and tips.

More AI-enabled fintech products are under development and new ones appear on the market every day. Investing in an AI financial product is surely becoming something businesses in the industry should consider to stay competitive.