The future role of AI in finance

The financial industry is changing rapidly and external catalysts are overwhelming its business model. Blockchain, AI and mobile payments have led financial services companies to refine their views of the future, but can AI ever replace the personal experience?


The general consensus appears to be leaning towards the idea that artificial intelligence can replace the role of human financial advisors and therefore, those in the industry must adapt or risk getting left behind. But before jumping to that conclusion, it’s worth exploring some important questions: what’s next, what is needed and who needs it? And, perhaps crucially, whether AI will ever remove the need for human advisors in the financial industry.

AI transforming financial sector
Business leaders have revealed that the use of technology including AI plays a significant role in filling gaps within financial services offerings. Jim Pendergast, Senior Vice President and General Manager at AltLINE by The Southern Bank, has said that AI can improve the consistency of financial advice. “AI is inherently consistent, so it can provide a much narrower picture of what will work and what won’t based on previous information. When it comes to investing, having this level of consistent understanding of the market can help investors make the right choices.”

Cliff Auerswald, the President of All Reverse Mortgage, said in a recent interview that AI could solve questions about potential financial problems and solutions. “While human financial advisors do have some of the best options for financial solutions based on past experiences, AI can provide more research-based information on how people can succeed financially,” Auerswald said. It’s clear that with advancements in technology, even the financial sector has become less human dependent. Personal mobile applications powered by AI and machine learning algorithms have started flourishing in the market, providing additional value over traditional approaches.

AI use cases in finance
As highlighted by Pendergast and Auerswald, the rapid expansion of AI application areas is having a huge impact in the environment that firms are operating in, both externally and internally (see Fig 1). Externally, AI is making it possible to carry out tasks faster and at a lower cost. Internally, AI is shaping companies’ relationships with their customers, other firms and society at large. Pendergast said that some of their clients rely on AI to improve their finances. “We work with small and mid-sized businesses, so we often recommend software that will help them keep track of their finances successfully,” he elaborated.

Auerswald mentioned that his own company occasionally uses AI for their financial advisory. “We don’t know any major organisations that rely solely on AI. Other organisations should give it a shot since they can likely improve their metrics and customers’ experiences over time.” Of course, the pandemic has further accelerated digital transformation in the banking sector, with several financial firms racing to adopt cloud-based technology to deliver a much better service for their clients. An increasing number of financial companies use various different technologies to offer digital online services that have traditionally been provided by mainstays of the financial industry. According to Pendergast, many financial services firms are using AI to detect fraud, predict cash-flow events, create invoices, fine-tune credit scores, conduct cost and benefit analysis, as well as for account creation and goal setup. Other uses include recommendations for investing, rebalancing of portfolios and retirement planning, communication between users for mutual investments, and trading and investing in stocks, bonds and ETFs.

Robo-advisory helps to simplify customers’ user experience and make advisory services accessible to both wealthy customers and investors with lower investable amounts. Robo-advisors are increasing investment activity, especially with the low-budget investor, who generally doesn’t have access to investment advisors.

Continuous 24/7 accessibility, automated rebalancing, and monitoring differentiate robo-advisors from traditional investment advisory services. Customers can access their accounts via user-friendly websites or smartphone applications and make adjustments to their portfolios any time of the day and recalibrate their investments.

Robots can’t replace human interaction
There has been lots of hype about AI and its potential application in the investment advisory process, but implementing such a service model must be evaluated in strict terms that take ethical questions about transparency and responsibility into account. Both Pendergast and Auerswald admitted that the use of AI for personal finance and planning is gaining in popularity and is seen as more accurate as a forecasting tool. However, when it comes to things close to people, they disclosed that financial firms still prefer human financial advisors – this includes buying a house, buying a car and planning for retirement.

Pendergast asserted that AI will likely never truly replace financial advisors. He stated that financial advisors have tools to help increase finances and often explore routes that most people don’t consider, and AI often won’t have the ability to make those distinctions.

Auerswald appears to be in agreement on this point, explaining that human advisors are better able to adapt than AI, though machine learning is narrowing that gap. “Even with all the research that goes into AI, human intelligence can make decisions that are not based on previous activity in the market, making them invaluable,” he stated. In other words, the industry experts don’t believe that AI can replace the role of human financial advisors. They agree that human financial advisors continue to play an important role in counselling individuals about managing expenses in accordance with their income and ways to increase their savings for better investments.

For instance, Pendergast stated that technologies such as AI are better suited to handling day-to-day functions such as opening an account or executing trades than giving advice to clients. AI advisory systems are currently based on products that require little or no active portfolio management. An example of this is ETFs, which do not require active decision-making by portfolio managers, thus making their cost structure more manageable. Despite the cost savings that AI services provide to customers, such services seem to struggle with customer adoption.

Customers appear to prefer hybrid models where they can search for information and compare products online, but are still able to contact human advisors before completing the final investment. AI advisory services do have some value, and the proof of this is measured by those willing to test out a robo-advisory service when they discover that one exists. They just aren’t willing to use it to make actual investments via online platforms. Pendergast and Auerswald admit that this is an area in which more work is needed in order to design AI so that the end result is more accessible for customers.

AI can support human advisors’ success
For now though, the industry experts believe that human financial advisors will still be needed alongside AI, both now and in the future. Pendergast said that AI is vastly more efficient than most other techniques, and therefore it can help financial advisors save a lot of time. Auerswald agrees that time delays when it comes to market analysis can be solved with AI. “One of the problems with the traditional way of working is the time it takes to analyse information. AI can make information more reliable, but the resources will be easier to see overall,” he stated.

Typically, a financial advisory role is a pretty hectic job. Accounting for clients’ income, expenditure, loans, taxes, and investment is not a straightforward task for a financial advisor. The calculations, and therefore the results, can be imperfect at times. All the above shortcomings can be easily overcome by using a mobile application backed by AI. In other words, financial advisors should be supported by technology – AI could be used to make sense of the research and other data that advisors don’t have time for. The very best technology is that which acts as a natural complement to our lives. That is what AI can do, because breaking down a variety of product options is a mammoth task that we are not necessarily best equipped to carry out.

Auerswald signalled that AI is likely to take over many organisations, as many people may choose this option over a paid financial advisor, since it’s much easier. He did mention, however, that people who don’t know how to make the correct financial decisions are destined to fail, even if they do use AI metrics. “Remember that AI is not exact, so it’ll become more popular, but coupling it with human financial advisors will continue to be the future of artificial intelligence,” he stated.