Displaying items by tag: digital advice
AI is Changing Retirement for Clients and Advisors
Financial advice has long been seen as a luxury for the wealthy, but with new technology, that’s rapidly changing. Artificial intelligence is making high-quality financial guidance more accessible, helping advisors serve more people and empowering individuals to take control of their financial futures.
Today, only about 35% of Americans have a financial plan—a gap caused by high costs, limited access, and discomfort around discussing money. Traditional retirement strategies like the 4% withdrawal rule and fixed retirement ages are becoming outdated as lifespans lengthen and economic uncertainty grows. Many people rely on fragmented resources, such as online tools or informal advice, which often fail to create cohesive, personalized strategies.
Here’s where AI steps in:
- It delivers dynamic, real-time guidance tailored to individual life stages, financial goals, and challenges, far beyond what a static plan or annual review can offer.
- It democratizes access to planning tools, enabling younger investors, women, and middle-income families to build strong, personalized financial plans.
- It enhances professional advice by helping wealth managers streamline portfolio management, forecast needs, and deliver hyper-personalized service.
Finsum: For advisors helping clients plan for retirement, the right technology can help anyone make confident, informed decisions about their financial journey.
Wharton Says AI Is Rapidly Changing Advisors Practice
The financial services industry is at the brink of transformation with the introduction of generative AI, which could reshape how financial advice is provided. Traditionally, financial planning has relied on human advisors, but AI tools now offer the ability to handle tasks from retirement planning to portfolio management, learning from user data and economic trends.
These AI systems can improve efficiency and communication between clients and advisors, but adopting them requires careful consideration of the costs and risks involved. Issues like AI "hallucinations," where the technology generates inaccurate advice, and bias in recommendations highlight the need for vigilance.
Despite these challenges, the potential for AI to revolutionize financial services is immense, provided businesses implement strong governance, human oversight, and regulatory compliance.
Finsum: By striking the right balance, AI can enhance the financial advisors practice while ensuring ethical and responsible use.
Advisors See AI as an Advantage Not a Threat
A new survey by Orion reveals that financial advisors are increasingly viewing AI as an opportunity, though its adoption is still gradual. Currently, about a third of advisors are already utilizing AI in their practices, with 42% experimenting with its potential uses.
Nearly half of advisors plan to integrate AI into their strategies within the next three years, though some remain cautious, with 36% expressing concerns about its implementation. The survey also highlights a divide in preferences for tech solutions, with a majority favoring a mix of bundled and unbundled platforms to balance efficiency and customization.
Additionally, 84% of advisors see high-net-worth clients as critical for their firm's growth, with most actively expanding in this segment.
Finsum: Its clear that higher up the wealth chain, clients want not only AI thematically but also integrated into their services; making sure their advisors are on the cutting technological edge.
Having Two Custodians Pays Off
Independent financial advisors see business growth as their top challenge for 2024, but according to a survey by Interactive Brokers, robust technology and multiple custodial relationships will drive this growth. The survey revealed that 79% of advisors believe automation can free up time for client relationships, while 60% think it helps new team members get up to speed faster.
Additionally, 58% said automation reduces overhead costs. Advisors are increasingly seeking more automation in client account management and onboarding processes. The multi-custodial model is gaining traction, with 64% of advisors using at least two custodians.
The survey also noted a growing focus on high-interest rate accounts for cash balances. To spur firm growth, advisors are prioritizing marketing, client referrals, and industry networking, with some planning to recruit and train young talent as part of their long-term succession strategies.
Finsum: We see advisors leaning on this combination of technology and personal relationships benefiting the most.
The Great RIA Flock
Financial advisors are flocking to independence. Some who switched to the RIA model, say it was a game-changer for their career, and they have gained an "entrepreneurial mindset" while creating lower-cost programs for clients.
This trend is widespread. Cerulli reports the RIA channel is experiencing the fastest growth in advisor headcount. The number of independent RIAs and advisors working there have grown steadily over the past decade. Advisors are seeking independence for several reasons. Clients demand lower fees, and RIAs allow advisors to deliver quality service at a competitive price. Wirehouses, on the other hand, are raising advisor costs.
One highlights of the RIA fee-based model is it has made RIAs a target for private equity firms. Cerulli predicts RIAs will control nearly a third of the market by 2027. Advisors like Harry Figgie see this as inevitable due to the open architecture, financial benefits, and equity-building opportunities offered by the RIA model.
Finsum: The RIA model has been made easier by the technological advancements in advisor space, and this trend might continue to ramp up.