AI is reshaping the financial advice and wealth management industry, bringing with it both transformative potential and pressing questions. A recent study by Downing Fund Managers highlighted that 46% of advisers believe AI will play the most significant role in advancing efficiency, personalisation, and automation in the sector over the next five years. Jason Bates, co-founder of Monzo and Starling, echoed this sentiment at the PFS Conference, envisioning an “augmented adviser” model, where technology empowers advisers to combine the best of human and AI capabilities. Yet, as AI’s prominence rises, so do questions about how well firms understand and manage the AI solutions they’ve started to adopt.
In the rush to implement AI and keep pace with competitors, many firms have jumped into deploying AI tools without fully comprehending how these technologies impact their business processes, client relationships, and regulatory obligations. In this article, we explore the critical questions firms need to ask about AI, particularly in a highly regulated industry like financial services, and how firms like Adeptli can help.
The Temptation of AI and the Risks of Rushing In
In recent years, financial advisers and wealth management firms have been quick to explore AI, with application ranging from Suitability Letter writing solutions and risk profiling to virtual executive assistants and automated data extraction from client conversations or historical data. While AI can streamline operations and improve customer experiences, it also brings complex risks that require due diligence – risks that many firms may underestimate.
For instance, while many of the larger financial networks initially led the charge in developing customised AI solutions, smaller firms are increasingly opting for off-the-shelf AI. The appeal of plug-and-play AI tools can be strong, especially with demos that showcase the technology’s potential. However, these demos often fail to reveal critical compliance, data handling, and functionality considerations, which are essential for real-world application (not to mention most aren’t able to deliver on the promise when eventually used within the desired process). Some firms, after minimal experimentation with demo versions, are rolling out these AI tools across their adviser network without fully understanding their impact.
Key Questions for Effective and Compliant AI Implementation
In such a highly regulated industry, financial advice firms need more than just a superficial understanding of the AI solutions they’re implementing. Here are the fundamental questions that any firm considering AI should ask to ensure their solutions align with regulatory requirements, client expectations, and business needs:
1. Client Data Handling and Permissions
AI solutions, especially when baked into a financial advice process, rely on large quantities of sensitive client data, which raises questions about data usage, consent, and privacy. Does your firm have clear client authorisation to use their data in training AI models? Do clients understand how their data will be processed and stored by the AI solution? With GDPR and Consumer Duty regulations in play, firms need robust data privacy protocols to protect client interests and be seen to be treating them fairly.
2. Transparency and Traceability
AI models can be opaque, making it hard for firms to understand how decisions are reached – let alone explain these decisions to clients or regulators. How traceable are the AI’s decisions? Do you have mechanisms to ensure that you can explain, and if necessary, audit, the AI’s outputs?
3. Bias and Fairness
Treating customers fairly is a central tenet of the FCA’s Consumer Duty standards. However, AI algorithms can introduce or amplify biases, potentially leading to unfair treatment of certain clients. Does your firm regularly evaluate the AI for potential bias, and do you have safeguards in place to mitigate it?
4. AI Reliability and “Hallucinations”
AI-generated “hallucinations,” or instances where AI generates inaccurate or fabricated information, can have serious consequences in financial advice. What measures does your firm have in place to validate the accuracy of AI outputs? How do you ensure that advisers can confidently rely on these AI-generated insights? Do you understand what model drift is?
5. In-House Expertise and Oversight
Many firms, particularly smaller ones, may lack the in-house resource or expertise needed to oversee and customise AI solutions. Does your firm have the expertise to monitor the AI’s performance? Can you tailor the solution to fit your specific needs, or are you limited to the tool’s default settings?
Why These Questions Are Critical in Financial Services
In the financial advice sector, these questions are not merely best practices – they are essential. The FCA’s regulations require firms to have sufficient oversight and understanding of their operational processes, including any AI systems they adopt. As a result, some firms are rethinking their AI plans or imposing internal approval processes to ensure they are widening the scope of their selection criteria and due diligence.
Some larger financial networks have even started to ban AI implementations or require stringent pre-approval before allowing them to be used across their networks. This trend reflects a growing recognition of the need for careful, informed AI adoption to avoid potential pitfalls.
The Future of AI: From Cost Savings to Strategic Transformation
AI is here to stay, and the financial advice firms that leverage it effectively will find themselves well-positioned for the future. As Jason Bates noted, the future of AI lies in empowering “augmented advisers” who can deliver the best client outcomes, utilising both technology and human insight. In the short term, many firms are focused on using AI to solve specific problems and reduce operational costs. However, firms that look beyond immediate efficiencies and consider how AI could fundamentally transform their processes will be the ones to lead the industry and drive better client outcomes.
Firms that think strategically about AI will move beyond treating it as a simple cost-saving tool and instead see it as a source of enhanced insights that can reshape how they serve clients and build relationships. This shift requires a deep understanding of both the technology and its implications – something that few firms have yet achieved on their own.
How Adeptli Can Help
For financial advisers and wealth management firms grappling with the complexities of AI, Adeptli offers tailored support to navigate this evolving landscape. Our services range from helping firms understand the basics of AI to identifying areas in existing processes where AI can create efficiencies, enhance client experience and deliver improved client outcomes. We ensure that your AI strategies align with compliance obligations, industry best practices, and your business goals, so you can confidently use AI to serve clients and stand out in a competitive market.
You’ll notice we haven’t discussed cost, process optimisation, or managing the potential critical reliance on third-party solutions—those are topics for another day. For now, our focus is on building your confidence in AI compliance and understanding to help you harness its full potential.
Contact us at hello@adeptli.co.uk or book an introductory call with Jamie to discuss how AI can drive your business forward.
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