Channel 4’s television series Humans depicts a world where highly sophisticated, life-like humanoids called ‘Synthetics’ are a must-have in any household or company. Whether required to do laundry, make cups of coffee or undertaking admin, robots start to replace humans across many different jobs and functions.

While Humans is obviously a fictional construct, there is insight to suggest that it presents a not-too distant future. A recent report by consultancy firm PwC projected that 30% of jobs in Great Britain were potentially under threat from breakthroughs in artificial intelligence. In the most affected sectors, up to half of jobs could go.

The first wave of impact has already been seen in wealth management. Algorithmic investing has been around for years. But how likely is it that automated systems could replace the role of the relationship manager?

Digital – in its most common current form – is already seen as an essential hygiene factor for private clients when deciding who they entrust with their assets. Investors have a broad sense of how they interpret value in a wealth management relationship and digital is fast becoming a benchmark for the perception of quality.

Wealth advisors, however, are yet to fully align themselves to clients’ digital expectations and are therefore at risk of falling behind the curve.

Our latest research with CFA Institute shows that a majority of millennials (under 35s) now deem the strength and breadth of digital tools to be a core value of their wealth management, rather than access to skilled professionals. And while younger wealth advisors are more in tune with this trend than their older colleagues, they are still wary of accepting that clients could value digital functionality more highly than access to human experts.

Figure 1: The core value of wealth management


At first glance, the prognosis does not look good for the advisory profession. But the supporting research indicated that clients are still willing to pay a premium for a wealth management service as long as advisors can prove they can demonstrate expertise over a range of technical product areas. Robo-advisors cannot reason or empathise with clients in the same way that human advisors can in times of adverse personal or market circumstances. Moreover, automation has decreased the potential cost of investments but remains limited to the scope of portfolio management for now.

Artificial intelligence may not be able to replace the human element of a client-advisor relationship but it will become ever more relevant to wealth managers over coming years. The first fund to be under full control of artificial intelligence was launched this week in what could be a major milestone in the asset management industry. However, an overreliance on computer models has burned fingers before and we only need to look as far back as the pound flash crash, or CDOs based on subprime mortgages.

It therefore seems more probable that future wealth management solutions will strike a balance between humans and computer models. Automation has a place within the wealth space for executing and maintaining investment solutions while advisors can communicate advice to clients that these machine-based models generate. Digital technology can still be embraced by advisors in an effort to maximise their assets under management while retaining a personal touch for clients.

The wealth industry is also moving to boost productivity through their back-office spending on automation. Ever-changing regulatory issues continue to squeeze profit margins of wealth managers with the rise of ‘RegTech’ promising to help keep client assets secure, but also appease cross-border regulators.

Digital is not just another channel but an integral part of the wealth management proposition. Early adopters of automation stand to outperform the competition as advisors move to keep pace with the digital advances seen in other industries. Automation will not replace the RM service model within the next few years but advisors will need to better differentiate and articulate the value of their offering to stay competitive.

Thought for the week:

Progress is impossible without change, and those who cannot change their minds cannot change anything – George Bernard Shaw

News from the world of wealth:

DBS announces new head of digital bank – Hubbis

Trump drops 220 spots on the Forbes Billionaires List – CNN

The end of banking as we know it –

A day in the life of a 28-year-old private banker – Business Insider

Artificial intelligence and the wealth management space – WealthManagement

BENAuthor: Ben McNeil, Analyst

Background: Before entering the wealth sector, Ben previously worked as a market analyst at a financial news firm providing insight across a range of asset classes

Education: Ben completed a Bachelor’s degree in Economics at the University of Edinburgh and a Master’s degree in International Finance at Maastricht University

And at the weekends: Ben tries his hand at different racket sports with varying degrees of success and quenching his thirst afterwards with craft beer

Cover photo from peyri, used under creative commons license.

Leave a Comment