AI chatbots – opportunity or threat for wealth managers?
The need for transformation and role of technology in wealth management has become evident, as stated in my predictions for 2023. In this article I am exploring the opportunities and risks of AI chatbots in wealth management, such as ChatGPT. Will AI chatbots be the beginning of the end of wealth management services as we know them?
And being transparent, ChatGPT effectively assisted me in writing this article.
What are AI chatbots and what are its use cases?
ChatGPT, recently released by OpenAI, showcases the advancements in AI technology and its potential to play a role in both personal and professional aspects of our lives by aiding, rather than completely replacing, human tasks. ChatGPT is just one among the growing number of text-to-text chatbots that are available.
ChatGPT belongs to the category of language generation AI models. It is a transformer-based neural network trained on a large dataset of text, and it uses this training to generate human-like responses.
In general, AI chatbots have a wide range of use cases, including:
Customer service and support
eCommerce and online shopping assistance
Healthcare (scheduling appointments, providing medical information)
Banking and finance (managing accounts, providing financial advice)
Education (answering questions, providing feedback)
Entertainment (recommending movies, music, etc.)
Personal assistance (scheduling, setting reminders, etc.)
Marketing (qualifying leads, providing personalised recommendations)
Human resources (scheduling interviews, providing information about benefits)
At first, I had my doubts about the effectiveness and accuracy of ChatGPT. With artificial intelligence having gone through several hype cycles in recent years, I was sceptical that this was just another short-lived trend. However, upon trying out the public version of ChatGPT, I was impressed by the high-quality responses it provided. Compared to today's support chatbots with often responses of low or no quality, ChatGPT was a pleasure to use. The generated texts are generally well-written and natural sounding.
My confidence in the technology grew to the point where I felt comfortable using it to help me write parts of this article.
The costs to serve customers in banking
To understand the full potential of AI chatbots, we need to consider the high costs to serve customers in private banking and wealth management. Staff are the wealth managers' highest costs which leads to a high cost-income ratio, especially for smaller firms.
According to McKinsey, relationship managers spend 60-70% of their time on non-advisory activities (see infographic below).
Relationship managers spend 60-70% of their time on non-advisory activities
The conventional cost reduction method is cutting headcount. Although improving operational efficiency by reducing the costs is necessary, it shouldn’t come at the cost of service quality. The same is true for increasing service fees without providing a higher customer value.
The role of technology in reducing cost to serve the customer and increasing service quality
Reducing costs must go hand in hand with process automation which ultimately increases the efficiency and effectiveness of serving and advising the customer. Meeting the needs of today’s customers must be (cost) efficient and adaptable to individual clients.
Improving operational efficiency and customer experience in wealth management should be focussed on the following activities:
Acquisition and onboarding
Advice on products and services
Engagement, servicing and retention of customer relationships
Content management and distribution
Regulatory compliance integrated in customer journey
A data-driven approach utilising AI and machine learning can personalise products and services on a large scale and alleviate limitations of human capacity and capabilities. AI chatbots can be a crucial component in this process.
How AI-driven chatbots can improve service quality and productivity in wealth management
AI chatbots can increase efficiency and reduce costs for customer service. They should aid human advisors rather than replace them, creating a hybrid model for better service and customer satisfaction. AI chatbots can also provide more efficient and personalised service. Automation enabled by AI can streamline processes and increase productivity, further reducing costs and improving customer experience. Additionally, AI and big data can help to identify and tackle systemic financial market issues, such as money laundering.
Engaging with intelligent software that speaks fluently and may even possess a sense of humour in the future can enhance the digital customer experience and complement human advice. This will create the impression of highly personalised service with a human-like touch.
By continually improving, AI can lower the cost of services and provide access to wealth advice for those who were previously excluded or had limited access to traditional wealth advice.
What are the preconditions for a successful deployment of AI-chatbots?
The key preconditions for a successful deployment of AI-chatbots are:
Clearly defined goals and use cases
High-quality training data (relevant for wealth advice and products)
Robust natural language understanding capabilities
Good dialogue management
Effective testing and evaluation
Continuous maintenance and improvement.
Chatbots are not a set-it-and-forget-it solution. They require continuous maintenance and improvement to ensure they remain accurate and relevant over time.
Who will be the winners in the new age of AI-assisted customer service?
It became clear to me that wealth advisors who do not adopt effective new technologies will face significant challenges in the future. As margin pressure increases and customer expectations rise, businesses that fail to keep up with the latest advancements will struggle to remain competitive. In today's fast-paced, technology-driven environment, it is essential for companies to stay abreast of the latest developments and implement them in their operations in order to succeed.
Wealth management firms that prioritise their customers' needs will see significant advantages from incorporating AI chatbots into their operations. Specifically, fintech firms that specialise in wealth management (aka WealthTech) will be able to leverage the latest technology and set themselves apart from traditional players in the industry, who may be slower to adopt new technologies. Providing a personalised, automated experience is crucial for creating a compelling value proposition in today's market.
Sources and references:
Open AI, ChatGPT: chat.openai.com
Ron Shevlin, Forbes, January 2023: forbes.com/sites/ronshevlin/2023/01/09/5-predictions-for-banking-and-fintech-in-2023/
McKinsey, interviews with private banking RMs, 2021: mckinsey.com/industries/financial-services/our-insights/analytics-transformation-in-wealth-management
Chatbot builder: timesnownews.com/technology-science/gupshup-launches-a-chat-bot-builder-powered-by-gpt-3-article-97088822
ChatGPT 4.0: searchenginejournal.com/openai-gpt-4/476759/
Compared to chat-GPT, GPT-4 can improve task precision and efficiency: analyticsinsight.net/gpt-4-can-help-make-tasks-more-accurate-and-efficient-than-chat-gpt/
Private Banking automated, Mark Bruce, Private Banker International, January 2023: privatebankerinternational.com/features/private-banking-automation-chatgpt-ai/
The coming democratization of Financial Services, thanks to AI, Joe McKendrick, Forbes: forbes.com/sites/joemckendrick/2023/01/14/the-coming-democratization-of-financial-services-thanks-to-ai/?sh=2794f1b3582b
Talking to AI-Driven Bank Bots, Teodoro Cocca, Finews, January 2023: finews.com/news/english-news/55407-chat-gpt-3-articicial-intelligence-ai-banks-teodoro-cocca
sounds familiar