The future of the adviser

Predictions about Artificial Intelligence (AI) wiping out millions of jobs need not worry advisers too much. Why? Because the need for AI in the first place stems from a shortage of advisers and an acute undersupply of wealth management services. Technologies like AI and Cloud computing, along with business model changes like wealth management-as-a-service (WMaaS), are all, therefore, to be welcomed as the industry looks to democratise access to professional wealth management.

Today, 42 million people have access to a wealth management adviser. This sounds like a large number, but we think that there are 1.8 billion people with US$10,000 or more in investable assets. Indeed, our own estimates also point to US$33 trillion of investable assets are not professionally managed. This is much more than a missed opportunity to help people achieve better wealth management outcomes. With a global pension deficit running into hundreds of trillions of dollars, this unnecessarily risks leaving millions of people unable to live a comfortable retirement.

However, help is on its way. Technology and changes in business models will have a positive impact on advisers and, in turn, help democratise wealth management so that substantially more people have access to professional wealth management.

Is a wealth manager even necessary (anymore)?

There is a shortage of wealth managers. In the US, for example, there are 280,000 advisors compared to over 12 million High-Net-Worth (HNW) families and 35 million mass affluent families. Furthermore, according to Cerulli Associates, 37% of these wealth managers plan to retire in the next 10 years, so it is likely the number will shrink, not expand, over that time.

However, technological changes make it easier for more people to manage their own wealth. Some changes in technology, such as Cloud computing, make it cheaper to provide services. Other services make it possible to provide people with education and interactive services at scale, enabling them to better understand their financial position and options.

Nonetheless, while these technological advancements make it possible for a greater number of people to access and capitalise on basic services, as a person's requirements become more complex, their need for an adviser also grows. This happens when people get wealthier and want to diversify their investments; when people’s lives change, such as when they have children; when external circumstances change. In our recent Future of Finance report, for instance, Carston Kroeber, from bevestor, points out that automated (robo) investments lose their appeal in a rising interest rate environment, as customers expect better returns. While in the same report, Philipp Merkt, from PostFinance, says that at least part of the success of its mass-market investment services is owed to the fact that for investments from CHF5,000, every investor has access to an investment manager.

Can generative AI replace the wealth manager?

There is no question that the world changed in November 2022 with the introduction of ChatGPT. Like the iPhone or the steam engine, it was clear we had seen a step change in technology. One of the most impressive aspects of ChatGPT is how humanlike it seems. Up until now, computers have worked with forms and structured inputs and outputs, but now with the advent of large language models we can communicate with computers in natural language and get close-to-human responses in understanding and accuracy.

So, if computers can mimic an adviser in how they interact with clients at the same time as having access to all the world’s information, why not replace human advisers with AI?

AI will inevitably play a much bigger part in the role of the wealth adviser. If, for example, AI can update the CRM system after every client interaction, rather than the wealth adviser having to do so, then this is a big step forward. Similarly, in prepping the adviser for every meeting, reminding them of all past interactions as well as providing up-to-date and complete analysis of all the available options open to the client, AI will prove invaluable – as UBS’s Marco Borer said in our recent report, AI will also make clients more knowledgeable.

That said, the role of adviser remains invaluable, but we see the future adviser will now be 'augmented'. In the same way as the robo-adviser did not displace the physical adviser, nor will AI. People will still seek the reassurance of dealing with a human adviser for advice on what remain deeply emotional topics and, for as long as the AI makes errors and hallucinates, banks and wealth management organisations will insist on human involvement. However, those advisers will be augmented by AI, spared mundane tasks, better prepared and more informed to be able to deliver an enhanced service to a broader base of customers.

Will the wealth manager be replaced by other types of relationship manager?

At additiv, we strongly believe in the power of WMaaS to expand service provision. By WMaaS, we mean the provision of wealth management services through nonwealth management-specific channels, such as a retailer or insurance company. The advantage of WMaaS is that services are distributed through channels that a customer is already using, so there is no additional financial cost to reach the customer (and the cost of customer acquisition falls), and the context is understood such that relevant services can be proposed at the right time. In short, WMaaS addresses the two major barriers to adoption: cost and education.

However, while wealth management services are increasingly provided through non-wealth management channels, we do not see this having much impact on the need for advisers.

Firstly, most of the embedded wealth management services will be of the basic variety, self-service, and not involving a wealth manager. For instance, we see opportunities such as turning cash rewards into investments or opening a pillar three pension account through a retailer. These will be initial onramps in the world of wealth management, after which people will likely see advised services.

Second, if financial advice is given, it will be given by qualified financial advisers. If embedded wealth services require advice, the consumer will either be re-directed to the underlying provider or, as may be the case, they could be offered advice by a relationship manager qualified to give advice, such as an insurance broker. In the case of the latter, AI will again play a part in augmenting their capabilities and the range of advice they can give at the same time as mitigating the short supply of wealth managers.

The future of the adviser is bionic, augmented, but still human - and not just for the super-rich Ultimately wealth management is a service everyone with investable assets needs in order to make the right financial and commercial decisions to live a comfortable life and retirement. The urgent need to expand the provision of services is underlined by the huge number of people not receiving professional advice on the one hand, and the yawning US$800 trillion pension deficit on the other.

Robo-advice and other forms of self-service wealth management have been helping to address the provision gap, but they are not enough. The issues lie around cost and access, but we should note that robo-advice is not sufficient as people’s needs and circumstances change.

Nils Frowein CEO

With WMaaS, lowering the cost of acquiring customers and putting relevant products in front of customers is likely to have a much more profound impact on meeting customer demand. However, as with robo-advice, WMaaS is likely to cover more basic services and does not obviate the need for human advice.

The role of the adviser is, therefore, still critical to wealth management provision. The only remaining question is whether AI can replace the human. Our view is that this is unlikely, and instead, we foresee the human adviser becoming supercharged – freed from administrative tasks, empowered with more knowledge about the services their firm can provide, and laser-focused on every client’s individual needs.