Long reads

Wealth management will see an AI revolution in 2022, delivering hyper-personalisation at scale

Alessandro Tonchia

Alessandro Tonchia

Head of Strategy, Private Banking and Wealth, InvestCloud

The wealth management industry – often thought of as one of the more traditional fields of financial services – is now no stranger to artificial intelligence (AI) and machine learning. Indeed, most firms use it in some capacity today. But to date, its deployment has largely been confined to the automation of repetitive processes to deliver greater efficiencies and cost savings, rather than truly delivering measurable value that end-clients can feel. And when you think of how AI has revolutionised and enriched virtually all aspects of our daily lives – from music streaming to ride-sharing, and even budgeting, lending, and investing in the finance world – it seems clear that most wealth firms have yet to unlock its full power and transformative value.

This is all set to change in 2022. A confluence of factors has come together over the last two years to spur this shift. Overnight, the pandemic made digital the primary channel for clients to engage with their wealth manager and adviser, and they like it. Meanwhile, wealth firms have been busily accelerating their cloud migration journeys, seeking client portals that are more intuitive and data solutions to store client data and unlock advanced analytics that will power radically more personalized client offerings. Add to this better accessibility of third-party market and ESG data that firms can harness, and you have the recipe for an AI revolution in managing wealth.

This will create far more tailored and engaging client experiences while enabling wealth managers to make better decisions and be more responsive to clients at scale in five key ways.

1. Hyper-personalisation

Automation no longer has to entail a trade-off with the level of personalisation that a manager can offer a client. In fact, it can do the opposite. Machine learning applied to CRM client data can now give advisers a far greater understanding of their clients' needs, preferences, and attitudes – even providing a level of detail that may not be possible when engaging in person.

This enables managers to create a myriad of unique client personas that go far beyond traditional wealth segments – creating truly customised user experiences. Just like the Netflix homepage is customised to your specific viewing habits and genre preferences, personalisation can and should be delivered when clients log in to check their portfolios. They should be served up content relevant to their ESG preferences, sectors of interest, and financial goals. But this goes far beyond just content; the same methods can be applied to investment ideas, portfolio construction, and rebalancing proposals.

2. Next best action recommendations

Robo-advice has been here for quite some time now, but it has often catered to the mass market and mass affluent market with limited scope for personalisation. A use case that will start to take hold over the coming year is using machine learning to give advisers Next Best Action recommendations on individual client portfolios, allowing them to provide personalized advice at scale.

A series of signals and alerts can prompt advisers when they may need to engage with clients. Sophisticated narrative reasoning can then analyse client behavior, combined with market data and CIO insights, to recommend the right products or actions to take to meet an individual client's financial needs and goals.

3. Complex financial planning

For the more complex areas of wealth management – such as planning around cashflow, tax, and trusts – you historically needed to go to a dedicated financial planner. They would provide a long document and maybe suggest a wealth provider that could help implement it, which left a big burden on the client.

But digital planning engines are evolving to handle these more complex calculations and provide a complete end-to-end solution, from the strategy to specific goal support and product recommendations to meet each of these goals. Furthermore, they can provide micro-planning for a whole host of different scenarios that go beyond simple goal-based planning for retirement. For example, saving for a child's education, charitable donations, or a holiday home. This is an entirely joined-up offering to make clients' financial goals a reality.

4. Beyond model portfolios

For decades, the model portfolio has been a mainstay of the wealth management industry, with six or so standardised portfolios that provide enough range to meet different clients' risk profiles and investment time horizons. However, as ESG continues to become a key priority for a large portion of investors, this approach may fail to stand the test of time.

ESG means different things to different people in a world where, for example, there are 17 Sustainable Development goals to choose from. One client may care more for clean water and poverty relief, while the other may care more about the environment and equality. Model portfolios as they stand today cannot account for all of these individual preferences.

AI will, therefore, play a key role in dynamic and personalized portfolio construction. It will enable an ESG decision layer to be added into a coherent framework that mixes risk/returns, as in the traditional world, but also uses client ESG preferences to drive the selection of shares and funds that promise an optimal impact against those individual criteria.

5. Real-time monitoring

Clients are much more engaged in their investments today and are no longer satisfied with monthly or weekly updates on their portfolios. They want to be able to track the instruments they are invested in and be alerted to any relevant market movements or news in a sector where they have a stake as often as they check their email or social media.

The immediacy of greater access to research, market data, and digital news enables this type of real-time monitoring for both clients and advisers. They can be alerted when there is a market correction, new views from the Chief Investment Office are issued, or relevant trading signals are detected. Advisers can be notified if a client has received some negative press or is rumored to be selling their company. This enables advisers to be much more responsive and proactive ­– engaging with their clients and monitoring across markets, products, portfolios, and strategies.

The year ahead will be an exciting period of innovation in wealth management, as many of these solutions start to become a competitive differentiator. A cultural and mindset shift has swept through the sector, as wealth managers realise that digital is critical for the future of their businesses. It is key to not only providing the more personalised online experiences clients desire but will also help achieve greater efficiencies at scale amid ongoing fee compression. There's everything to play for.

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