AI and the future of advice

Bank of Nova Scotia recently opened a large, loft-like space in Toronto dedicated to technological innovation, including AI. Royal Bank of Canada has established an AI centre in Edmonton in collaboration with the Alberta Machine Intelligence Institute (AMII), a branch of the University of Alberta. Toronto-Dominion Bank hired 2,000 tech specialists last year and will add 1,000 more this year, including experts in AI. The Bank of Montreal and the Canadian Imperial Bank of Commerce are also significantly boosting their pools of digital talent, with an eye to AI and fintech. (All are based in Toronto).

AI is already affecting the investment industry. In the U.S., AI has been used for several years by Chicago-based NextCapital Group Inc. to help financial institutions streamline the management of investment accounts while still providing individual advice. Last month, that firm announced a deal with Boston-based insurer John Hancock Financial, a subsidiary of Manulife Financial Corp., to provide robo advice and digital services to John Hancock’s 2.7 million clients with retirement accounts.

Although AI is still relatively new to the financial services sector, it has been in use for decades. In simple terms, it enables computers to replicate some of the features of human thinking that require responses to changing conditions in ways that cannot be pre-programmed. These include functions such as perception, planning, reasoning, predictive analytics, speech recognition and decision making.

Among the most common examples now in use are robots that are capable of performing repetitive tasks in areas such as manufacturing and health care; the use of drones for commercial purposes such as photography, video monitoring and the delivery of goods; and the development of driverless cars.

In the financial services sector, AI is being seen as a visionary new technology, particularly in the area of client relations. “[AI can potentially] automate customer interactions, facilitate speech and vision processing, analyze trends, detect fraud, and conduct risk assessments,” says Richard Sutton, professor and iCORE chairman in the department of computing science at the University of Alberta, who is affiliated with the AMII.

AI can also be viewed as superior to human intelligence in making financial decisions. Sutton adds that, by automating day-to-day interactions with clients, AI can perform tasks more efficiently, eliminating the need for long personal interactions with clients.

As a result, the potential impact such technology could have on financial advisors and their firms – which already are struggling to stay on top of the massive amount of financial data available through the Internet – is evident.

AI can absorb and use market data to “learn” how financial markets, sectors and securities are likely to change – like a huge intellectual sponge with powers vastly greater than any human brain. That computing power will allow AI to track the online habits and behaviours of a vast array of clients, using that information to arrive at customized investment recommendations for clients based on their resources, goals and risk tolerances.

So, instead of using rules-based software – like robo-advisors – AI will be able to go several steps further, to develop models that enable decision-making for clients. As Sam Febbraro, executive vice president, Investment Planning Counsel Inc. in Mississauga, Ont., notes: “[AI can be] used to sift through massive amounts of data to facilitate a better understanding of clients.”

As AI evolves in the financial services sector, a broad range of companies are using its power for various purposes. In addition to the John Hancock initiative in the U.S., the Bank of New York Mellon and American Express Co. (both based in New York) and Spain-based Banco Bilbao Vizcaya Argentaria (BBVA) have adopted robotic process-automation technology to automate human tasks. Several others, including Bank of America Merrill Lynch (BOAML) have partnered with various tech firms to develop AI applications for an array of services.

For example, last year, BOAML unveiled a smart, AI-powered virtual assistant that can analyze clients’ accounts, respond to their questions and anticipate their financial needs. Similarly, UBS uses AI to provide personalized advice to its wealthy clients.

Jean-François Courville, executive vice president and chief operating officer with RBC Wealth Management in Toronto, says AI has a key part in building a “digitally enabled relationship bank” and has broad applicability across financial services.

He says RBC is using AI and machine learning in retail banking to better understand its clients and anticipate their needs. In wealth management, he adds, the bank is using AI capabilities to help increase the productivity of its investment advisors.

“We’re already using AI to improve fraud detection, in risk management, for enhancing client security and to help reduce operational risks,” Courville says.

All of this may sound as though the human factor in providing financial advice will no longer be needed, but that is far from the case. With so much information at hand, advisors will be needed more than ever to help clients understand the most difficult aspects of investing and financial planning, such as how to allocate and manage whatever resources they have. Ron Fox, CEO of Glidepath Portfolio Services Inc. in Toronto., says AI can enable “meaningful, goals-based investment platforms,” while still allowing advisors to advise clients directly.

Febbraro notes that, as investment products become more of a commodity, AI will lead to improved productivity, accuracy and speed of delivery. This, in turn, will lead to lower costs, especially in relation to repetitive manual tasks.

Courville notes there is no substitute for the personal. “The human relationship is an intangible,” he says. “The support and personalized client service and, in some cases, the trust that develops over time between clients and advisors, cannot be replaced by AI. A more flexible digital environment for our advisors will allow them to be even more present with their clients.”

Those views are echoed by Fox. “AI will support financial advisors, not replace them,” he says. “When things get complex, human nature is to pick up the phone and call an advisor,” who can then offer emotional support and a counterbalance to a client’s pessimism or disappointment.

Adds Sutton: “People, not machines, are in control.”

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