Council Post: AI Reboots Robo-Advisors For A New Wealth Era (2024)

Kunle Fadeyi is the CTO at TAPP Engine.

AI financial advisors are appealing due to their quick, complex calculations and impartial, emotion-free advice.

Thirty-one percent of investors have already said that they would be comfortable taking financial advice from AI without even verifying the information. Meanwhile, 8% of people in the U.S. already use a form to help them with their finances—and this is still in the early days. As AI continues to develop and people find more ways to integrate it into our lives, who knows where it could go?

With AI helping to dissolve financial barriers, could a digital advisor become everyone’s financial expert? Let’s take a closer look at the silent revolution of robo-advisors and how they are set to transform the financial landscape as we know it.

One of the biggest claims when discussing AI technology, be it in the financial industry or creative arts, is that AI can’t replicate human emotions and sentiments. But what if they could? As technology continues to develop, AI could soon find a way to assess human emotions, sentiments and reactions to provide financial advice accordingly.

For some people, the lack of emotion works for them in their decision-making, especially if they just want to base their decisions on logic and calculations. But for those who like their advice to be a little more rational, robo-advisors with emotions could be just what they need to make better use of AI.

Beyond this, AI could personalize investment strategies with cultural and personal values, making robo-advisors feel more human-centric and approachable for financial advice.

Until now, Wall Street and other financial centers across the globe have held a monopoly on finance—something history tells us hasn’t always been a positive thing. But with the rise of robo-advisors in finance, things are beginning to change, decentralizing financial power and expertise and helping it become more mainstream.

Instead of being seen as a rival to traditional financial powerhouses, AI is instead being seen as an asset, with more than 85% of respondents in a recent survey saying they are using some form of AI to assist in financial services. AI is helping to save time and money by automating processes and predicting financial risks, while the investment advice they provide is also being used to inform decision-making.

In the future, robo-advisors could further develop to help foster community-based investments, supporting local businesses and initiatives in a way that wasn’t accessible to these groups before. With this added intelligence, those outside of the Wall Street bubble could begin to experience some of the financial rewards that others have been able to access for years, making a big difference to communities and those who may have felt shut out from investing in the past.

There is also a lot of talk about how AI can bolster sustainable investing. Businesses are already using the capabilities of machine learning to help identify different environmental patterns, monitor those with strong AI performance and more, helping to reduce risk while also developing portfolios for clients that are more attuned to a company’s sustainable interests.

This does, however, pose some ethical challenges. The data and governance requirements will need to be considered, with extra safeguards put in place—especially for industries at particular risk such as healthcare, justice and education, where personal data is used.

If AI could be programmed to prioritize more ethical investments, then there are certainly implications to consider. AI might lack the idea of a "conscience" right now, but if robo-advisors are developed to consider this way of thinking, there is a possibility of them becoming an attractive alternative to human financial advisors, who may not necessarily share the same ethical traits. These types of developments could lead to improvements across the industry as a whole, with more consideration given to ethical investing.

AI robo advisors go beyond what humans can manage without years and years of training. The potential of robo-advisors to be able to adapt their financial advice according to language and regional landscapes can open doors for those in areas with limited financial literacy or sound advisory infrastructure. Robo-advisors could develop "financial dialects" and could soon learn how to understand and advise in different regions and countries, tailoring advice to their unique trends and challenges. This provides opportunities for existing financial advisors to go beyond what they already know and expand their advice into other markets—enhancing their own practices in line with AI.

As we all know, technology can fail. And AI, while able to achieve great things right now, doesn’t and won’t always get it right. When something goes awry, who will ultimately be responsible for it? If financial advice turns out to be poor, will creators take the blame, or will the responsibility ultimately lie with the clients who are taking the financial risk?

There are also data challenges to consider. If financial robo-advisors become more personalized, safeguarding to protect personal data needs to be in place. The potential risks for data leaks, identity theft and more become even greater when technology is involved, and these systems will need to be protected against their vulnerabilities. Advances in AI bring many positives, but these advances will need to be carefully managed to help protect the data of all involved.

While robo-advisors look set to become a firm part of our financial future, they will likely coexist alongside human advisors who will blend their own expertise while using the power of AI to improve efficiency and insights to help inform decisions. Spaces such as "robo-advisory cafés" could soon be commonplace, providing areas for individuals to interact with both digital tools and human experts, enhancing the financial advisory experience and making it more accessible to all.

AI will not be a replacement for the human side of finance but rather a companion that could bring some significant improvements to the industry and ensure that everyone can access the financial advice they need.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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