ChatGPT and the Future of Wealth Management
Morgan Stanley testing with 16,000 financial advisors
ChatGPT and the Future of Wealth Management
After years of discussion and reflection, I believe the wealth management industry will soon experience earth shattering change, triggered by generative AI like ChatGPT.
In my opinion, within 5 years, first-movers in the Wealth Management industry will start to Beta test the following:
1. Financial advisors will be assisted by generative AI in delivering portfolio construction, insights and wealth planning to their clients. In doing so, every advisor will level up to deliver the best their firms have to offer. As Jeff McMillan, head of analytics, data and innovation at Morgan Stanley said “This is like having our chief strategy officer sitting next to you when you’re on the phone with a client.”
2. Robo-advice platforms will incorporate generative AI to provide more comprehensive and customized advice and education to their users via both text and voice generative AI. The democratization of bespoke portfolio management will leap forward and the Robo-advice wealth planning product shelf could expand into areas traditionally not offered (e.g. tax and estate planning). Some firms may leverage existing distribution of voice-assistants, such as Alexa (so far deemed a failure) and Siri. Others will take a more proprietary route by building their own aps.
3. Investment managers and analysts will increasingly use generative AI to augment and accelerate the research and portfolio construction process. Rote processes could be minimized and information synthesis standardized, creating better scalability for asset managers. In the end, asset managers will be able to deliver more investment products with a much smaller - and cheaper - portfolio management team. Large asset managers will likely fall behind newer, smaller companies without the burden of legacy org structures, processes and operating cultures.
Ultimately, this is about scaling intellectual capital and improving efficiency, freeing people up to deliver the more 'human' parts of the business.
Research Paper: “Can ChatGPT Improve Investment Decision? From a portfolio management perspective”
In March 2023, researchers Hyungjin Ko and Jaoewook Lee published a yet-to-be-peer reviewed study to see how ChatGPT performs as an investment manager. Ko and Lee concluded the following:
From an investment perspective, our study highlights the potential benefits of utilizing ChatGPT as an aid in managing portfolios. Retail investors, particularly those who may be uneducated or misinformed, can benefit from the democratization of portfolio management. Additionally, professional portfolio managers can improve their productivity by focusing on more important tasks while being assisted by ChatGPT in the selection of diverse assets for a given portfolio. ChatGPT can also be employed as an educational resource for inexperienced investors or individuals who lack knowledge of financial matters.
ChatGPT can impart fundamental financial concepts in a comprehensible and user-friendly manner, providing valuable guidance and supportive education in the field of finance.
Overall, ChatGPT represents an important advancement in the democratization and accessibility of portfolio management and financial education. While our study does have limitations, particularly in terms of short-term validation, we believe that the findings suggest promising avenues for future research. Specifically, we recommend further investigation into the potential for ChatGPT to improve asset pricing determinism and the long-term validation of its use in portfolio management.
In conclusion, ChatGPT is not a “prophet” of the financial industry but rather an “assistant” or “co-pilot” to investors and portfolio managers. When used appropriately within a set framework, ChatGPT has the potential to revolutionize asset allocation practices. However, it is important to note that the role of human experts in portfolio management remains crucial, as they must work in tandem with theoretical frameworks and investment theory to ensure proficiency and reliability in verifying accurate information from LLM.