The impact of AI on wealth management | HCLTech

The impact of AI on wealth management

Wealth management institutions are leveraging AI to enhance client experience and improve efficiency in core operations and control functions, while maintaining data privacy, security and compliance
3 minutes 12 seconds read
Nicholas Ismail
Nicholas Ismail
Global Head of Brand Journalism, HCLTech
3 minutes 12 seconds read
The impact of AI on wealth management

The impact of artificial intelligence (AI) on the wealth management industry has been growing in recent years, although leading wealth managers have been using AI and machine learning already for years. As AI technology advances, it has been changing the way the financial sector operates, enabling significant improvements and creating new opportunities for wealth management firms.

Until now, enhancing efficiency and productivity, especially in risk management, has been a key benefit of embracing AI in wealth management, according to Olaf Toepfer (OT), Founder & Chair of the EY Global Centre for Wealth Management, during an interview at TCF 2024.

Pointing to EY’s 2024 Global Wealth Management report, he said: “The strategic value of AI lies in efficiency improvement across areas like the middle office and back-office as well as in control functions, including compliance and risk. Besides we shall expect more use cases addressing front office priorities in the future.”

AI’s impact on client experience

AI is playing an interesting role in revolutionizing the client experience in wealth management. 

According to OT, driven by client demand and increased expectations on wealth management services, AI is enabling customization and personalization at scale, targeting improved communication with clients, which is more seamless, value adding and real-time.

This has led to the rise of AI-powered advisor tools, which can deliver support on more complex advice based on client preferences and needs. This frees up time for wealth managers to focus more on the relationship and complex, sophisticated tasks that require human intervention, although human oversight will remain key to the relationship.

 “In addition, AI can help relationship managers in wealth management building stronger relationships with clients, helping them based on best practices to become more effective in client acquisition, client development, client activation and client retention,” said OT.

Strengthening risk management practices

AI has also strengthened risk management practices in wealth management. By analyzing vast amounts of data, AI-powered tools can identify potential risks and opportunities faster and more accurately than humans, enabling wealth managers to make informed decisions. 

These tools help organizations identify risks in a more accurate way, while helping develop new strategies to mitigate risks, which ultimately has transformed decision-making in wealth management.

For instance, regarding investment management, AI can assess market conditions and economic trends, evaluate asset performance and simulate portfolio outcomes, enabling wealth managers to identify and mitigate risks proactively. AI can also detect fraudulent activities, monitor compliance and flag suspicious transactions that may cause harm to clients.

“Having a holistic view on clients and having AI look at the data [to provide risk management advice] is something wealth management firms have started to invest in. It will also help reduce the cost of adhering to compliance standards,” said OT. 

The data privacy and compliance challenge

“One of the largest concerns of boards and executives today regarding AI is the potential reputational risk due to [exposed] data security and quality of advice,” said OT. While AI offers exceptional benefits, it also presents some challenges, particularly around data privacy and compliance. 

Wealth management firms have access to highly sensitive client information, which requires encrypted handling and protection. AI algorithms can process this data to provide insights, but they can also be vulnerable to breaches and cyber-attacks. 

Additionally, wealth management firms must comply with a vast array of regulations, which can vary between jurisdictions and evolve over time. Compliance requirements seek to protect clients' interests, maintain market integrity and prevent financial crime. 

AI can help wealth management firms and managers to comply with regulations by automating tasks such as monitoring transactions, identifying suspicious activities and reporting them to regulators. However, AI must be transparent and accountable. 

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The art of the possible

When asked how wealth management firms can embrace AI, OT advised: “AI has the power to drive efficiency, better client experience and even mid-term structural change to business models. Industry leaders might want to invest time for them to understand the opportunities and risks related to AI: Bring the executive committee together to learn and explore...but you need to start carefully and appropriately ensuring the organization is responsibly leveraging the potential of AI.”

He added: “The entire industry faces an issue on margins, which have been incrementally decreasing over many years. Today, we’re seeing an acceleration of structural change especially in affluent banking.”

AI, and its impact on experience, risk management and decision-making, is a key part of this structural change. 

According to OT, the key question then is; who will be able to apply AI concepts to future business models and scale those solutions faster than others, positioning them to outperform others in the industry? 

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