Why Firms May Reverse Course on AI Plans in 2024: Forrester

The emerging technologies likely won’t yet be ready to deliver objective advice, says a senior financial analyst.

After firms and technology vendors across wealth management have rushed to capitalize on the increasing buzz surrounding artificial technology, issues like privacy, bias and explainability will likely cause some to reverse course next year, according to a senior analyst at Forrester. 

The consulting firm’s research found that 45% of business and technology professionals in wealth management plan to adopt generative AI technology over the next 12 months.

For example, JPMorgan Chase is reportedly developing a ChatGPT-like software that can recommend investment products. Other wirehouses, broker-dealers and large RIAs are similarly looking at how the technology can be deployed. 

However, despite the hype surrounding these technologies, they likely won’t yet be ready to deliver objective advice in 2024, said Vijay Raghavan, a senior analyst at Forrester focused on private banking and wealth and asset management.

More work is needed on “explainable AI” that can demonstrate how any advice provided is in a client’s best interest, he said.

“It’s all risk management, right/? These guys just can’t be putting out something that will be [delivering] hallucinations to the retail customer,” Raghavan said, referring to the phenomenon of AI generating output that is nonsensical or inaccurate. “It’s just too risky.” 

That’s not to say the technology doesn’t have commercial potential in wealth management. Forward-thinking firms will develop explainable AI that works internally before bringing it to consumers, Raghavan said. 

For example, Morgan Stanley has been training the GPT4 engine on its own internal information, rather than on what’s found more broadly on the internet, for a back-office chatbot that assists advisors and their staff

Changing investor behavior will also influence the technology that firms deliver to clients in 2024, Raghavan added. The ongoing high-interest environment has consumers looking more at fixed income investments than they have in decades, yet most mobile investment apps can’t meet the demand. 

Only 25% of respondents to Forrester’s digital usability study were able to find bonds on a firm’s app, and most apps don’t offer a way to trade them. Fidelity Investments’ app provides the ability to buy a certificate of deposit, but that’s an exception, Raghavan said. 

“To me this seems like a real opportunity to add some bond-screening capabilities and really differentiate in the market,” he added. 

Raghavan also expects new types of technology to thrive in 2024 as advisors look to attract validators, a demographic that Forrester defines as younger (average of 43), employed and earning an average income of $106,000. At 42%, this group is now the largest segment in the United States.

These investors are more hands-on with their investments but still want to connect with financial advisors.

Advisors launching or moving a practice need more sophisticated and mobile-first technology to reach this demographic; plus, technology vendors taking full advantage of cloud-based services and products can help deliver this in a matter of weeks, instead of months, Raghavan said. 

This new model, which he calls “wealth management as a service,” will challenge some of the existing players in the tech landscape. 

(Credit: Daniel Chetroni/Adobe Stock)

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