OPPORTUNITIES FOR DISRUPTION
This is a real-life scenario: Ant Fortune is the wealth management platform of Ant Financial Services Group (the financial arm of eCommerce giant, Alibaba).
During a recent conference in Shanghai, Ant Financial revealed that deploying Artificial Intelligence (AI) applications – financial know-how, algorithm and consumer behaviour analysis – had fuelled a massive 70 year-on-year growth in the number of transaction users on its Ant Fortune platform. Also interesting – those who purchased automatic investment plans had jumped 1.7 times since 2018.
The ambition at Ant Fortune is to mimic a high-end private banking model, where customers place the majority, if not all of their assets in one channel because they can fulfil different financial tasks through a unified platform.
Wealth management is on the cusp of a revolution powered by Artificial Intelligence, which offers predictive analysis and recommendation applications that help individuals make and support better investment decisions, swiftly.
This article shares a deeper insight into the impact of AI on the future of wealth management, for both investor and wealth manager.
AI in action
With the increasing volatility of markets and complexity of products available for investors today, next-gen capabilities such as AI can empower both wealth managers and clients to navigate uncertain times. Will AI help the market solve all pain points? Perhaps not. But, here are three substantive areas in which it can be applied to solve challenges:
Mitigating Compliance Risk: After a 2017 Deloitte survey identified regulatory compliance risk as one of the top three risks to be increasingly faced by investment management firms, the latter will be relieved to know that the capability to manage compliance risk can be eased with the use of AI.
Take counterparty risk, for example. In terms of an institution’s product providers for its complex financial instruments, AI-based analytical platforms can manage risk by integrating varied information about suppliers – from their geographical and geopolitical environments, to their financial risk sores. Intuitive tools allow real-time compliance checks, ensuring every trade meets compliance standards. AI-based applications allow client advice to be based on individual trades, so that wealth managers are covered at every angle. Relationship managers will be able to trade recommended investments to client portfolios with a single click, and at the same time see instant updates on profiles of newly-adjusted portfolios. They will become more proactive in providing the most suitable investment strategy and asset allocation for their clients.
Optimising Portfolios: Even more than safekeeping capital investments, High Net Worth Individuals (HNWIs) expect high returns on investment from their wealth managers. Aligning risk frameworks with investment strategies that can be done with AI will maximise efficiencies of an institution’s fund administration processes. Within seconds, wealth managers can access the overall positions as well as the objectives, investment style and strategies of every fund available. Accurate Net Asset Value (NAV) calculations is an essential part of an institution’s fund administration process. AI-based applications automate NAV and pricing calculations, which can also be applied across an institution’s range of funds, while also having variation checks and pricing controls. Once the full history of a fund’s activity, accruals, fees and NAV is considered, wealth managers are more capable of adding other factors into play in order to achieve optimum return on investments in a client’s portfolio.
Hedging against market volatility risk: HNWIs not only expect good returns on their portfolios, but also preservation of their capital. The ability of AI-based applications to efficiently use data for forecasting can be useful for hedging against market volatility. AI technology allows institutions to use complex modelling to amplify the wealth manager’s approach to capital safekeeping. AI will be able to aid wealth managers in explaining the impact of risks such as economic and idiosyncratic risk, and therefore. gain a more accurate prediction for the performance of their client’s portfolio.
Artificial intelligence is set to transform the face of asset management, one the biggest industries in the world, worth over US$74 trillion (about four times the size of the US GDP, with more than 4,500 funds and asset managers each managing more than a billion dollars). Humans cannot compete. Human trading is being replaced at breath-taking speed by automated, data-driven algorithms. In global financial markets, the natural next step in the evolution of investing will be to use computers with billions of times the human “computing capacity” to make trading decisions. By automating the tasks that are most inefficient for human beings, wealth managers can be freed to focus on what they do best: nurturing advisory relationships built on trust, personal knowledge, and a deep understanding of client needs.