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Why AI is an opportunity and not a threat in the wealth management space

“If you don’t accept technology, you better go to another place, because no place here is safe,” – Robert Rauschenberg, an icon of 20th-century art.

A fund manager is a professional appointed by a client to invest and manage their portfolio. The role of a fund manager is to protect the interests of clients, deliver the approach committed and put in the best effort to reach the goal agreed.

Technology does not change the primary tenet of either who is a manager, or what are they supposed to do. It helps improve the relationship by making it more objective, transparent, and efficient.

More objective investing

Study after study has shown the deep biases that impact even the most expert investors. Humans are emotional and biased decision-makers. They can and must use technology to augment these blind spots.

Data availability has exploded over the last two decades. This means asset managers have big data available to use in natural language processing, image recognition, and machine learning to analyse and uncover new investment insights.

However, technology is only as successful as the person harnessing it. Therefore, fund managers need to upskill and prepare for a brave new world where they need to work with machines for product creation and alpha generation.

It is, in fact, their fiduciary duty to rely on tools more objective than them to help their clients achieve their goals.

Deeper, transparent client relationships

In the US alone, $68 trillion of wealth is going to be transferred to millennials from their parents in the next 25 years. This next generation of clients is going to have a different set of expectations. There are so many options at a client’s fingertips. How do you cut through the noise?

Technology allows managers to understand their clients better, and build/customise products that work for them. So, counter-intuitively, technology can allow for higher touch and deeper engagement.

This will become especially important as old ways of distribution become obsolete. Unless they evolve, banks can’t just rely on their massive physical distribution network alone to push products into the pipe.

Product discovery and investing will move online. It will even out the playing field. Managers who leverage technology to build and sell their products will do far better than those that don’t.

Cost efficiency

Over the next decade, we are going to see new economics emerge for fund managers. As ETFs and technology become more ubiquitous, costs will inevitably shrink. This means managers need to relook at their business models, get rid of the buffet of products and rationalise to a few profitable ones.

Similarly, managers will need to overhaul their cost structures for unit economics to make sense. Make changes to people, operations, and processes to allow for fee structures that are far lower than what they are used to today. This is where AI and analytics can play a big role.

So, in conclusion, let’s go back to the beginning. What is a fund manager supposed to do? In a nutshell, help a client achieve her financial goals. Technology is going to help managers do exactly that, only better and faster.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YS.)

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