Navigating an ethical future for wealth managers in the AI era

In a fast-changing industry deploying AI to introduce hands-free robo platforms for onboarding, marketing and investments, as well as helping human advisers, an ethical approach to tech transformation should be the goal of both regulators and innovators.

The landscape of wealth management is undergoing a profound transformation, with artificial intelligence (AI) emerging as a central force shaping the industry’s trajectory.

As financial institutions increasingly turn to AI for data analysis, risk assessment and personalised investment strategies, the newly politically approved European Union (EU) AI Act adds a layer of complexity to the evolving narrative of AI in wealth management.

AI’s influence on wealth management transcends the mundane. It’s a truly transformative wave, reshaping the very foundations of how financial decisions are made. From sophisticated algorithms predicting market trends to machine learning models personalising investment portfolios, AI is redefining the possibilities within wealth management. As alluded to by Forbes, the ability to process vast datasets in real-time enables AI systems to identify subtle patterns, offering unparalleled insights that traditional methods struggle to match.

As shown by Accenture, AI-driven financial advisers are becoming capable of comprehensively analysing an individual's financial profile, considering not only income and expenses but also predicting life events and dynamically adjusting investment strategies. For example, 83 per cent of advisers interviewed said they believe AI will have a direct, measurable and consistent impact on the client-adviser relationship in the next 18 months. This level of personalisation has the potential to optimise returns, while minimising risks, fundamentally altering the client-adviser dynamic. PwC forecasts that assets under management by robo-advisers will exceed $5.8tn by 2027.

Concrete realities

Beyond conceptual musings, real-world applications of AI in wealth management are already in motion. Robo-advisers, powered by AI algorithms, are democratising access to financial advice. An EY report shows clients have indicated use cases across the value chain, with alpha generation and financial advice topping the list, followed by client onboarding, marketing and investment operations.

These platforms analyse user preferences, risk tolerance, and market trends to construct and manage investment portfolios automatically. This ‘hands-free’ approach not only reduces costs but also provides a level of accessibility previously reserved exclusively for the wealthiest individuals and families. McKinsey highlights the cost declines representing a compelling opportunity for banks and wealth managers in Asia.

Forbes has also emphasised AI's data-crunching prowess in enhancing fraud detection and risk management. Machine learning models can rapidly analyse transactional data, flagging suspicious activities and potential risks. This proactive approach not only safeguards assets but also fortifies the integrity of financial systems.

Impact of the EU AI Act

While the promises of AI in wealth management are vast, the regulatory landscape, epitomised by the EU AI Act, introduces a set of constraints and considerations. The Act, with its emphasis on transparency, accountability, and user rights, raises pertinent questions about the deployment of AI in finance.

How can financial institutions balance the need for transparency in AI-driven decision-making with the complexities of financial algorithms? Will the Act’s provisions hinder the full potential of personalised investment strategies by imposing stringent disclosure requirements?

Moreover, the extra-territorial application of the EU AI Act adds a layer of complexity for global financial entities. As wealth management often involves cross-border transactions and services, navigating the Act’s reach becomes a challenge. The potential for divergence in AI regulations across regions introduces an additional layer of uncertainty for businesses operating on a global scale. In their briefing that focuses on the EU AI Act’s impact on financial services firms, Clifford Chance demonstrate how it is analogous to other cross-sectoral regulatory requirements, such as the General Data Protection Regulation (GDPR).

The role of Sam Altman and OpenAI

In the context of the evolving AI landscape, recent developments involving Sam Altman at OpenAI warrant attention. OpenAI has been at the forefront of advancing AI capabilities responsibly, emphasising the need for aligning AI systems with human values. Mr Altman's original vision for OpenAI, which includes collaboration with industry partners and a commitment to safety-conscious development, aligns with the principles embedded in the EU AI Act, loosely based on AI principles espoused by the Organisation for Economic Cooperation and Development (OECD). Principle 2.1 (Investing in AI research and development) is particularly important, given its focus on research and development as a means to spur innovation in trustworthy AI.

Despite his alignment with and adherence to the EU principles, Mr Altman’s recent dealings with OpenAI – namely returning to run the company he co-founded, following days of speculation and turmoil at the leading generative artificial intelligence start-up – underpin the need for solid corporate governance, as well as AI governance. Mr Altman, heralded as a leading tech innovator, has shaped the AI industry in the long-term, but has a fiduciary duty to the industry in driving forward sustainable growth.

Indeed, his influence underscores the importance of ethical AI development, a factor that resonates with the goals of the EU AI Act. As wealth management integrates AI technologies, partnerships with organisations like OpenAI that prioritise ethical considerations become increasingly valuable. The synergy between OpenAI's approach and the regulatory framework set by the EU AI Act can potentially serve as a model for responsible AI deployment in the financial sector.

Uncertain landscape

In conclusion, the marriage of AI and wealth management marks a pioneering effort with transformative potential. The EU AI Act introduces crucial considerations that balance innovation with accountability, steering the financial industry towards ethical AI deployment. The real-world applications of AI in wealth management are already evident, but the Act's influence introduces a layer of complexity, necessitating a delicate balance between progress and regulation. As the industry navigates this uncharted territory, the latest developments involving Sam Altman at OpenAI offer a glimpse of a future where ethical AI practices converge with regulatory frameworks, shaping the financial landscape in ways that are both innovative and responsible.

Sean Donald John Musch (top) is founder and CEO, and Michael Charles Borrelli is COO, of AI & Partners