The death of wealth advisers by AI
What do you do when you have lots of money? You get a wealth manager to look after all your money. You don't have a wealth manager? Obviously you don't have lots of money and you are not the target of firms like Morgan Stanley.
The headline 'Morgan Stanley to launch AI chatbot to woo wealthy’ caught my attention and I was wondering what magical tricks Morgan Stanley, with the help of AI, can do to attract the wealthy.
A few quotes from the article to set up the story:
'After testing it with 1,000 financial advisers for some months, the bank will roll out a generative artificial intelligence bot this month, developed with the makers of ChatGPT, OpenAI.'
'Bankers can use the virtual assistant to quickly find research or forms instead of sifting through hundreds of thousands of documents.'
‘The bank is also developing technology which eventually, with clients' permission, could create a meeting summary of the conversation, draft a follow-up email suggesting next steps, update the bank's sales database, schedule a follow-up appointment, and learn how to help advisers manage clients' finances on areas such as taxes, retirement savings and inheritances.'
'While the bot will give insights and administrative support to financial advisers, investment advice will remain the purview of humans.'
'Morgan Stanley is not alone in its AI efforts. While banks already use AI to crunch numbers, detect fraud and analyze customer transactions, Wall Street giants are developing more sophisticated uses of generative AI that is capable of generating text, images and other data.'
Once you weed out the journalistic hyperbole and abundant use of the term AI, you can see the real story that even the reporter likely didn’t notice. (Note to the journalists - what you call AI to 'crunch numbers, detect fraud and analyze customer transactions' used to be called data mining and predictive analytics. Those were the days.)
The misleading aspect of the headline is that it creates an impression that magical AI will somehow convince wealthy people to start piling money into Morgan Stanley. Once you read through, you can see the bank is trying to offload the paper overload from the advisors to the technology.
The real challenge for Morgan Stanley is the existence of technology like this in the first place. The banks' competitive advantage was the army of analysts who would be 'sifting through hundreds of thousands of documents' to find the trends, the companies to invest in, and the investment portfolios to build. That was its edge over other less-equipped organizations.
The technology just removed this competitive advantage, and anyone with a few dollars can build the tech stack, which connects to the Internet, gathers all the financial information, sucks in all the news, creates a summary, does the analysis, and connects the 'dots'. It will also 'schedule a follow-up appointment, and learn how to help advisers manage clients' finances in areas such as taxes, retirement savings and inheritances.'
Without the personal relationship between the client and the adviser backed by the big name, there is no longer anything that differentiates the bank. The technology leveled the playing field. Once the wealthy client finds out that sending $1,000 to AI with less fees gets the same outcome, this wealthy client won't have any reason to talk to an adviser ever again. Loading the tax codes of every country to a computer, adding rules for cross border transactions together with legal requirements for setting up companies will result in your money being spread around the world. That investment is optimized for liquidity, geopolitical risk, foreign exchange rates or any other constraints you set. Rebalancing of the portfolio will happen as frequently as required. You won't know it, you won't care.
The recurrent pattern? Technology always reaches a point of adoption where, eventually, it doesn't provide any competitive advantage, and you have to adjust your strategy.