By Andrew Welsch
About 4,000 wealth management professionals descended on Miami Beach, Fla., last week for some sun, fun, and to see how artificial intelligence is affecting their industry. "I don't think AI will destroy wealth management, but it will transform it," says Justin Whitehead, co-founder and CEO of Pebble Finance.
Early signs of that transformation were on display at the festival-like event, Future Proof Citywide. Interviews at the conference with advisors, executives, and fintech founders suggest there is surging interest in adopting AI tools -- and a dose of trepidation about how the same tools may upend work habits and client preferences.
There's a lot riding on how the industry evolves in the age of AI. Advisors are eager to work more efficiently and effectively and they don't want to get left behind their competition.
"I think most advisors aren't yet benefiting from AI in a big way, but we are on the cusp of that changing," says Charles Schwab CEO Rick Wurster, whose company is the largest custodian for registered investment advisors. Wurster tells Barron's that basic advisor tasks will likely be replaced by AI, boosting advisors' productivity.
Meantime, investors in the financial sector are concerned AI advice could one day replace human advisors, exposing wealth management stocks to potential disruption. Last month, shares of Raymond James Financial, LPL Financial, Charles Schwab, and other wealth managers plunged after fintech provider Altruist introduced a new tax planning tool for its AI platform, called Hazel. Analysts have described the selloff, which affected insurance and other software sectors, as exaggerated, but the stocks haven't quite recovered.
Productivity focus. Some wealth management companies are seeing notable adoption of AI productivity tools by advisors. In the roughly 18 months since Cetera Financial Group made Jump AI available to its 12,000 advisors, more than 3,300 advisors have used the note-taking and meeting prep tool for more than 70,000 total meetings. Christian Mitchell, president of Cetera Solutions, says that represents one of the fastest adoptions of a new tool that he has seen in his roughly 20 years in the business.
"Jump caught on like wildfire," Mitchell says. "Advisors saw the value and embraced it. That's a harbinger of how firms should implement AI. If you make it easy, intuitive, and integrated into the experience, then you can drive adoption quickly."
About two-thirds of advisors at registered investment advisory firms or independent broker-dealers report using AI daily, according to a BofA Global Research survey conducted this month. Advisors said they expect AI to play a greater role in a variety of back office functions such as compliance, trade monitoring, portfolio management, and tax-loss harvesting, according to the survey.
Jason Pereira, a financial planner and senior partner at Woodgate Financial in Toronto, spoke at the Future Proof conference about how he's used so-called AI vibe coding to create tools, such as a mortgage calculator. Vibe coding allows a user, even one with no coding experience, to write their own code.
Pereira vibe coded a simple videogame starring Ritholtz Wealth Management CEO and podcaster Josh Brown and shared a demo at the conference. He cautioned that initial vibe coding results may not be perfect, but making the attempt can prove whether a concept is worthy of further refinement. "Everyone I have ever met wishes there was something better or different in their practice," Pereira said on stage.
For now, many advisors appear to be relying on outside providers to stock their AI toolbox, rather than building their own AI tools. There's also no shortage of fintech providers to choose from, as evidenced by the slew of vendors at the conference.
"We're all here at Future Proof because we know that AI is changing the business at breakneck speed," Mark Swan, CEO and co-founder of AI wealth management platform Nevis, told the audience on the first day of the conference.
Swan's Nevis and other fintech providers demonstrated their products on stage and in their booths and pavilions before large groups of advisors. Altruist, whose Hazel platform sparked the wealth management stock selloff in February, was also present at Future Proof. Advisors crowded Altruist's pavilion for a demo of Hazel one afternoon during the conference.
Executives at Carson Group, an Omaha, Neb.-based wealth management company with more than $57 billion in assets, say they're relying on outside providers, such as Amazon's AI platform, called Amazon Bedrock. "Our main goal is to increase advisor capacity," says Chief Strategy Officer Dani Fava, referring to the number of households that a single advisor can serve.
"For example, imagine a client going through a divorce. The client can send a proposed divorce settlement to the financial advisor and ask how this will affect our financial plan," Fava says. "The financial advisor can feed that into our AI assistant and get a summary that's in their hands that day."
Executives at Carson and other firms are optimistic about how AI can turbocharge their businesses, but there may be limits to how much of a productivity boost even the best AI tools can provide. For instance, how many client households can a single advisor effectively serve even if every task is automated by AI? Carson recently asked some of its advisors that very question and the consensus was approximately 300, Fava says. It came down to how many in-person meetings you can actually have a day, she explains.
Pressure points. Even as wealth management professionals tout the potential benefits of AI, there are nagging questions about how it may pressure fees, result in job losses, and spur client migration to self-directed brokerage platforms.
Wealth management fees have proven remarkably resilient for years. Human financial advisors typically charge around 1% of assets under management. This is in contrast to the asset management industry where fund fees have fallen dramatically. That's been a headache for asset managers -- but a windfall for investors.
"Financial advice remains one of the least commoditized areas within financial services," Citizens analyst Devin Ryan wrote in a Feb. 10 research note. Ryan attributed that to opaque fee structures as well as the close relationships that advisors forge with their clients. "Clients often value trust, familiarity, and convenience as much as, if not more than, pure cost efficiency," he wrote.
AI wouldn't be the first new technology to challenge traditional ways of doing business in the wealth management industry. Take for example robo-advisors. When the first robos arrived just after the financial crisis, they offered individual investors professionally managed portfolios at a fraction of the cost of a human advisor, typically around 0.25% of assets under management.
At the time, there was concern that far cheaper robo-advisors would replace many of their human counterparts. Fifteen years later, robo-advisors occupy a niche within the industry. In fact, the largest robo-advisors today aren't the start-ups, but those operated by large industry incumbents such as Vanguard, Charles Schwab, and Fidelity. Schwab's robo is sizable at about $100 billion in assets, but it's only a small slice of the company's $12 trillion in total assets. Wealthfront, which recently went public, has $94.1 billion in assets.
To Schwab's Wurster, it isn't surprising advisors have been able to maintain their advantage over robos, despite much higher fees. "I think what advisors have done to justify their fees is really expand what they do for their clients' entire financial life," the chief executive says, pointing to trust and estate planning, behavioral coaching, tax management, family governance, and more.
Advisors will likely have to adjust to a world in which AI advisors and AI financial assistants help individual investors better manage their finances. There are already indications that that future is arriving. Katie Partridge, a Morgan Stanley private wealth advisor, told Barron's Advisor recently that she and her team often assume new prospects have already asked ChatGPT about their financial situation. They plan for initial meetings so they can offer solutions "above and beyond" what they can get from AI.
How long will humans be able to best AI advice? Perhaps not for long. AI tools are increasingly embedded in investor-facing brokerage platforms. Today, Robinhood Markets offers Cortex, an AI assistant that helps the brokerage firm's customers identify potential trading opportunities. Betterment, one of the original robo-advisors, launched an AI recommendation tool on March 9 to help customers figure out what kind of account they want to open. The tool "combines advisor-built logic with AI-generated explanations to deliver tailored recommendations to customers," the company said in a press release. Betterment says it plans a broader AI expansion across its retail, independent advisors, and retirement plan businesses.
AI tools will also get more advanced with time. And they may shift the balance between investors who prefer to rely on a human financial advisor and those who want a do-it-yourself approach. "I think it will put pressure on wealth managers to do more than just create a financial plan," Pebble Finance's Whitehead says.
Back on the beach at the Future Proof conference, advisors were watching demonstrations of tools that tech vendors varyingly described as AI-powered, AI-enabled, and AI-inspired. With Florida's sun bearing down on them, a huge tent in the center of the conference that had a banner labeled "AI Playground" seemed to offer them respite, from the heat, but maybe not the challenges of the future. As Carson's Fava acknowledged, when it comes to AI financial advice. "We're still at the beginning of what's possible."
Write to Andrew Welsch at andrew.welsch@barrons.com
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