New developments in AI for the wealth management industry hold great promise, but one of those promises has leaders more skeptical: the AI software that promises to beat the markets with decision-making predictions.
“If you have a software solution that sells this, I don’t believe you,” said Michael Kitces, chief planning nerd at Kitces.com and co-founder of the XY Planning Network, who was speaking on Oct. 10 during Financial Planning’s ADVISE AI conference in Las Vegas.
“If you have built AI software that can actually find novel and original investment patterns that can be invested and exploited in the marketplace, and you sell SaaS software as the way to monetize that, you are not a good business owner. No offense,” he said. “You should be raising a hedge fund and seeing if you can beat Ray Dalio.”
READ MORE: Michael Kitces on what he does — and doesn’t — trust AI with
Since those remarks, some software providers who offer AI-backed portfolio analysis and management tools have pushed back, arguing that launching a hedge fund is instead the greater risk.
“It’s easy to say, ‘Go start a hedge fund,’ but there are very few that really do well,” said Ravindra Koka, founder and CEO of StockSnips, an AI-based platform that extracts data from reliable news sources to help advisors’ model portfolios. “Whereas, if you look at what we decided, we said, ‘No. 1, there’s more wealth outside of the hedge fund world.’”
Koka said StockSnips, which ingests about 50,000 media articles a day in real time to construct portfolio modeling, does not claim to offer any novel approach to cracking the markets. But it does find growth in providing software solutions to advisors.
“We found that these advisors do not have access to AI or any kind of sophisticated quantitative technologies,” he said. “They’re independent, and they’re feeling the pressure from passive index funds, and so they’re getting marginalized.”
There is a greater need for more diversified portfolio modeling services. BlackRock’s latest 2024 Global Insurance Survey found that 91% of 410 respondents said they intend to increase their investments in private assets during the next two years. This has opened the door for emerging tech providers, such as Opto Investments, to develop a private markets platform for independent advisors.
Still, there is reason to be cautious about any software provider claiming to have a proprietary code when most wealthtech firms have access to the same data, leading tech providers said.
“AI is as good as the content that’s being pushed into that analytic to get the proper output. And the reality is, unless that firm has access to a specialized set of data and content that’s not readily available to all the other engines, I worry about their ability to truly differentiate in what they do,” said Matt Matrisian, senior vice president and head of client growth at AssetMark, a full-service wealth management platform for independent financial advisors. “Because everybody’s going to have access to the same data and systems.”
Matrisian said most of the advisors who use AssetMark are testing out AI tools more so for drafting client communications and sentiment and summarizing meetings, for example.
“It’s more about driving scale and efficiency right now than actually using it as a tool to improve the way that they do financial planning or the way that they manage assets,” he said.
This also jives with wealth management studies this year that indicate advisors are most often using large language models, like ChatGPT, to help write emails or content. A new 2024 AI Benchmarking Survey of 200 financial service compliance leaders found that among 38% currently exploring AI use cases, the most common cases were using AI for research, marketing, compliance/risk management and operations support. The survey, conducted by ACA Group and the National Society of Compliance Professionals, also found that 52% of respondents said they use public AI tools, like ChatGPT.
READ MORE: Advisors are using AI but skipping compliance guardrails
Still, Matrisian said there will come a day when advisors begin using AI-backed software to help with decision-making in portfolio planning.
“Without a doubt … what we’ll see is more and more end clients getting comfortable with that experience,” he said. “At the same time, they [the advisors] are the ones that are ultimately responsible for intuitively making that final decision as what’s going to be most important.”
