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On the way to the wealth management industry still young though widening embrace of artificial intelligence (AI), an interesting phenomenon is developing.
Many clients that consider themselves enthusiastic about technology or outright tech-proficient are expressing concerns about the proliferation of AI in advisory practices. At the moment, the bulk of the questions advisors are fielding about AI are likely about related investment opportunities, but be aware that the technology’s other applications are on the minds of clients.
With today’s clients increasingly educated, sophisticated and aware of AI, it’s reasonable to expect more AI inquiries are on the way. Advisors should look on the bright side because inquisitive clients are engaged clients and engaged clients are the type advisors want around. As the old saying goes, closed mouths don’t get fed, meaning it’s easier to allay a client’s concerns when it’s clear exactly what those worries are. All of that is applicable to AI.
Getting Clients Over ‘Algorithm Aversion’
Credit due to Morningstar for the “algorithm aversion” phrase, which the research firm explores in detail in a recent piece on clients’ views on AI. One of the principal takeaways from that report is simple is better. Said differently, advisors shouldn’t boast about using the most complex AI models. They might want to reconsider deploying highly complicated models at all.
“Luckily, research finds that more-complex algorithms aren’t always better. In fact, in some situations, simple algorithms based on a few straightforward rules may outperform complex models and also be more robust,” according to Morningstar.
Another point of emphasis in the advisor/client AI conversation is articulating to clients how the practice is deploying AI to their benefit. It can be as simple as the advisor telling the client AI is being used to enhance back-office efficiencies that free up time for more direct interaction with clients.
“Fortunately, many professionals have found a way to improve accuracy by incorporating algorithms into their decision-making,” observes Morningstar. “By helping experts make better decisions when advising individuals, algorithms then improve outcomes for end consumers. Although the improved accuracy means the end consumers are better off when algorithms are used, this benefit is often not well-communicated to individuals.”
Human Touch Still Matters
Even with all the AI hoopla, there’s validation for advisors. Client’ AI comfort can increase when knowing there’s human oversight. They’re even open to AI taking on important functions such as portfolio construction as long as the computers have “human bosses.”
“For example, our research finds that investors may be more comfortable with their financial advisor using generative AI if their advisor checks the AI’s output before incorporating it into their decision—in other words, using a ‘human accuracy check’ layer before accepting an algorithm’s output,” concludes Morningstar.
Bottom line: client skittishness about AI is actually easy to erase. They simply want to know that when they need it, a human is running the show and their point of contact.
Related: Rising Longevity: A New Challenge for Advisors and Clients