Artificial intelligence (AI) has experienced tremendous growth in recent years. Various innovative technology companies have developed exciting AI-based software in the financial sector. In the past two months, the chatbot ChatGPT has broken all records and is currently the fastest-growing application of all time with 100 million users. Is this the final starting signal for wealth management with intelligent computers?
This blog post focuses on independent asset managers (IAM) in Switzerland. We will take a look at the current situation of these investment experts, followed by a consideration of possible areas of application for artificial intelligence. We will also assess how likely the rise of the artificial brain is here and what influence ChatGPT will have on this development.
Situation of the IAM business in Switzerland
Historically, independent wealth managers were usually not IT experts. Their core competence is individual response to the needs of wealthy private clients. Accordingly, the speed of technology-driven innovation has been limited in the past decades. The year 2022 was characterized by the FINMA license, which was required by the end of the year at the latest. There was accordingly little time for innovation. This process is now largely completed. Higher costs and margin pressure will continue to strongly influence the wealth management business in the future. The time for an AI-driven breakthrough would be ideal. Furthermore, independent asset managers have significantly shorter decision-making paths and are therefore predestined for cooperation with dynamic fintech startups with groundbreaking AI solutions. What could such a breakthrough look like?
Customer Reporting
Regular customer reporting is a cornerstone of wealth management. Positions are listed and explained, investment decisions are justified, and outlooks are communicated. Collecting this information and formulating these decisions and outlooks based on the customer’s individual needs is time-consuming. Artificial intelligence can now create such a report based on customer data, IAM internal information, and external market data. AI can implement this much faster and cheaper and can potentially align even better with customer needs. Solutions developed by fintech startups already exist and are already in use. Manual creation or supplementation of reports is typically not a task that a wealth manager seeks. Accordingly, the use of AI-driven reporting solutions is likely to accelerate significantly in the near future.
Portfolio Construction
Portfolio construction is one of the most critical elements in investment management. It involves determining the asset allocation and stock-picking based on customer needs, risk profiles, and market expectations. Risk optimization is also an essential component of this process. It is a highly data-driven process that requires quick decision-making. With the inclusion of ESG criteria and the regulatory requirement to assess the risk development of customer portfolios, the volume of data has increased significantly. An intelligent computer can process more data in a shorter time, but experts disagree on whether artificial intelligence can achieve better risk-adjusted investment performance. However, it is certain that AI can make the entire investment process much more efficient.
Although the use of AI in portfolio construction seems logical, the breakthrough may take some time. Asset managers prefer to make their investment decisions rather than rely on technology. In comparison to creating a customer report, portfolio construction is an exciting activity.
Chatbots for Customer Communication
Chatbots have been gaining popularity in call centers for several years, but the quality has often been disappointing. However, with the improvement of chatbot technology, their use in this field is expected to increase significantly. Although ChatGPT demonstrates that bots can provide helpful and meaningful answers in investment management, their use may be limited among independent asset managers. However, we can expect to see an increasing number of chatbots in niche areas of wealth management. For example, a digital Swiss asset manager has been using a chatbot for some time.
ChatGPT as a Catalyst
ChatGPT can serve as a catalyst for the development of AI in investment management. Humans tend to resist change, and the adoption of new innovations is often driven or slowed by habits rather than logic. For instance, the adoption of self-checkout machines in large supermarkets took years. During the initial phase, people preferred to wait in line at the cashier’s rather than use the available self-checkout machines. AI has been an abstract concept for most people, but with ChatGPT, anyone can work with AI for the first time and gain experience. This will fundamentally change our behavior and perception and significantly influence customer behavior in wealth management.
For your information:
On the occasion of the Sphere Event “Digital Solutions – Focus EAM”, the author will be moderating a panel on March 7, 2023 with the topic “What role does AI play in asset management” featuring Adriano Lucatelli, CEO of Descartes Finance AG, Thomas Tietz, CEO of Corum Vermögensverwaltung AG, and Alexandra Janssen, CEO of ECOFIN Portfolio Solutions.
Also check out my youtube video on artificial intelligence in wealth management
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