Important Tips for Advisors Looking To Capitalize on AI

First, a quick housekeeping item. This article will not address the artificial intelligence (AI) investment thesis. More on that is available here and for those that need a thrill, check out the pop by Nvidia (NASDAQ: NVDA) in after-hours trading on May 24.

With that out of the way, let’s discuss how registered how registered investment advisors can harness the power of AI to improve their practices and client relationships. Advisors shouldn’t be reluctant about AI nor should they be fearful of it. Either of those attitudes risk putting advisors behind their rivals and data suggest plenty of your competitors are embracing AI or plan to do so.

“We all know that artificial intelligence (AI) will change the way we work, if it has not done so already. In fact, 99% of financial advisors surveyed by Accenture said AI will play a role in the future of financial advice,” notes VanEck. “This is not surprising considering that embracing technology has always been an important part of growing an advisory business.”

An easy starting point for advisors in terms of conceptualizing the benefits of AI is to think of as additive to practice efficiencies. That’s relevant because data confirm tech-savvy practices experience higher compound annual growth rates in terms of assets, clients and revenue relative to tech-reluctant competitors.

The Right Ways of Deploying AI in Advisory Practices

As noted above, AI can bring new efficiencies to practices, including automation of tedious, time-consuming back-office tasks and adding a new layer to client service. AI chatbots can be used to answer very basic client inquiries, provide portfolio updates though not advice and schedule appointments.

Advisors can use AI to assist with more complex tasks, such as marketing and content ideas – the latter of which many advisors dread.

“AI can be a great place to start when creating ideas for content, so much so that it was used to help brainstorm for this blog. Start with an idea and try a few different prompts, and then use the ideas it generates to help write blogs, video scripts, social posts, and more. While AI can help generate ideas, it should not be used for content creation yet,” adds VanEck.

Another potentially appealing application of AI in advisory practices is as an added cybersecurity safeguard and as a fraud detection tool. Those pursuits don’t improve client returns, but they do increase client service and security.

Don’t Use AI for the Following

As noted at the start, there is an AI investment thesis and a compelling one at that. However, buying AI-related stocks and funds is a much different ballgame than using the technology as a primary research tool or as a securities selection mechanism.

Advisors should err on the side of caution and realize the AI technology they have access is likely not advanced enough to make sound investment decisions. There’s a 99.99% chance an advisor should NOT use AI to choose investments for clients.

Another “don’t” with AI is using for content creation, particularly external or client-facing content. AI concepts such as ChatGPT can whip up a decent 100- or so word missive on a variety of topics, but chatbots’ prose isn’t advanced enough to pen longer pieces.

Other areas of AI avoidance include using it for confidential tasks and decisions that require a human footprint.

“AI technology lacks the emotional intelligence and ethical judgment necessary to make certain sensitive business decisions. Areas such as relationship building and managing staff require a human touch to ensure fairness, equity, and compliance with legal requirements,” concludes VanEck.

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