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Generative robo advisors

October 17, 2023
clock 4 MIN READ

In the ever-evolving sphere of financial advice technology, a new prodigy is about to be born and take center stage – the generative robo-advisor. Unlike their predecessors, these savants aren’t just simple to use interfaces with algorithmic advice tied to passive investment strategies. They are a leap into a realm where generative AI and large language models are powered with highly specialized financial acumen, spelling a new era for democratizing financial advice.

A generational leap

The earlier generation of robo-advisors, while groundbreaking, often lacked the depth and comprehension required for nuanced and personalized financial advice. While they were easy to use and simple in their user experiences, their recommendations and implementations were equally simplistic. Enter the next generation of robo-advisors, coined generative robo-advisors. This next generation will be set apart by their underlying AI foundational models. These are not your run-of-the-mill generalist AI models like OpenAI’s ChatGPT, but highly specialized entities, trained in the art and science of delivering financial advice.

Knowledge, insights, and personalization

Imagine having a financial advisor that has not only digested every piece of knowledge required to pass the Securities Industry Essentials (SIE) exam, has become a Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA), received a certificate for being a Chartered Financial Consultant (ChFC), and passed the exam for a Chartered Alternative Investment Analyst (CAIA).  This same advisor has equally digested every piece of knowledge for insurance, including a Certified Insurance Counselor (CIC), a Certified Risk Manager (CRM), an Accredited Advisor in Insurance (AAI), and a Chartered Property Casualty Underwriter (CPCU). Combine this knowledge and expertise with a full comprehension of FINRA and SEC regulations. Now, envision this advisor having a grasp over historical economic events, both macro and micro, and how they ripple through markets. This is the new breed of digital advice, a generative robo-advisor.

These digital maestros will be armed with personal insights from previous financial plans, risk tolerance questionnaires, current and prior portfolio strategies, and an understanding of a client's life goals. They will converse with clients about their aspirations and fears regarding life, family, and community, weaving these threads into the financial advice they render. The cherry on top? They will be trained to navigate the choppy waters of market volatility as well as the impacts resulting from life events, offering personalized recommendations when it matters most – a role often attributed to the human financial advisor.

Lastly, the promise of unbiased advice is the cornerstone of the generative robo-advisor’s disruptive potential. Unlike traditional financial advisors who might have a bias towards certain products or services, the generative robo-advisor will be trained to stay neutral, focusing solely on the client's financial wellbeing. This unbiased nature, coupled with their hyper-personalized and superior knowledge of financial markets, positions generative robo-advisor’s as a potent threat to the status quo in wealth management.

Opportunities and risks

The opportunities are boundless. From democratizing high-quality financial advice to providing a level of personalized service at scale, generative robo-advisors are poised to redefine wealth management. However, this promise is not without its share of risks. The black box nature of AI could lead to a lack of transparency and regulatory scrutiny, and like any implementation of AI the depth and quality of the data used to train the models are critically important. The most interesting of risks however, is the potential threat of disruption of the financial advisory role itself. As these highly trained AI technologies are launched, what becomes of the unique value proposition of the human financial advisor? Will individual investors value more the incredible depth and breadth of expertise the generative robo advisors can offer, or will they value the human elements that AI – at least today – cannot provide?

The seismic shift in the financial advisory landscape is not a matter of 'if', but 'when'. Who will be the first to launch this next generation of digital advice that leverages generative AI and specifically trained LLM’s? Time will tell – but the tsunami of disruption is on its way to the financial advice landscape. The question is: is the market ready?

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