AI and its impact on Financial Services

Artificial intelligence is changing financial services quickly.

Investors can now use AI to research investments, explain financial concepts, compare strategies, summarise documents and model possible outcomes. Financial advisers are also beginning to use AI to improve research, administration and the way information is analysed.

This raises an obvious question:

If artificial intelligence can provide financial information almost instantly, do people still need a financial adviser?

In my view, yes. But the value of advice is changing.

As access to financial information becomes easier, the differentiator is increasingly not who has access to the most information. It is who can apply that information intelligently, understand the person making the decision and provide advice that the client trusts.

How is AI being used in financial services?

AI can already assist with many tasks that traditionally required significant time and manual work.

These include:

• summarising investment and economic research;
• analysing large amounts of financial information;
• comparing investment options;
• explaining financial terminology;
• identifying patterns in data;
• helping model retirement and investment scenarios;
• preparing meeting notes and financial documents; and
• reducing repetitive administrative work.

These capabilities should continue to improve.

For financial advisers, that creates an opportunity to spend less time processing information and more time understanding clients, considering alternatives and helping people make important financial decisions.

For investors, AI provides unprecedented access to financial knowledge.

But knowledge and advice are not the same thing.

How AI is improving investment research

One of the most significant uses of artificial intelligence in financial services is happening behind the scenes within investment management firms.

Fund managers have traditionally relied on teams of analysts to work through enormous quantities of company reports, earnings releases, industry research, economic data and other information before making investment decisions. That work remains essential, but AI is changing how quickly it can be done.

Some investment managers are now developing AI agents that can sift through large volumes of research, identify relevant information and assist analysts in assessing companies, industries and investment opportunities.

The result is not necessarily fewer analysts or less human judgement. In many cases, it is the opposite.

By reducing the time spent gathering, organising and initially analysing information, investment teams can devote more attention to interpretation, testing assumptions and deciding whether an investment genuinely deserves a place in a portfolio.

AI therefore has the potential to strengthen the research process rather than replace it.

This is also relevant to how we construct portfolios at BeaconPoint.

We do not need to believe that one fund manager, one investment philosophy or one AI system will always produce the correct answer. Instead, we can draw on the expertise of a combination of specialist investment managers, each applying its own research process, investment philosophy and areas of expertise.

We can then bring those different capabilities together when constructing a diversified portfolio.

In that sense, AI can strengthen the investment chain at several levels.

It can help investment managers process more information and improve the efficiency of their research. Those managers can use that research to make better-informed investment decisions. We can then assess and combine suitable managers and investment strategies to build portfolios designed around a client’s objectives, time horizon and tolerance for risk.

The technology is powerful.

But at each stage, human judgement still determines how the information is interpreted and how it should ultimately be used.

Can AI replace a financial adviser?

AI can provide information and analysis. What it cannot fully replicate is the context surrounding an individual’s financial life.

Financial decisions rarely exist in isolation.

Someone approaching retirement may need to consider their investments, KiwiSaver, property, expected spending, income, family commitments, risk tolerance and how long their money may need to last.

A business owner may have most of their wealth tied up in one company and be deciding whether to invest outside the business.

Another investor may technically have sufficient money to tolerate market volatility but find themselves deeply uncomfortable when their portfolio falls.

The numbers are important.

So are the people behind them.

Financial advice requires understanding not only what is mathematically possible, but what is realistic and appropriate for the person making the decision.

Emotion plays a major role in financial decisions

One of the reasons financial advice remains important is that people do not always make financial decisions rationally.

Fear, uncertainty, confidence, recent experience and personal beliefs can all influence investment decisions.

A falling market is a simple example.

An AI system can explain that investment markets have historically experienced periods of volatility. It can produce charts, probabilities and historical comparisons.

But an investor watching years of savings fall in value may still want to sell.

That is where the financial plan and the adviser-client relationship become important.

Why was the investment made?

What was the original time horizon?

Has the client’s financial position actually changed?

Has the investment strategy stopped being appropriate, or has the investor’s emotional response changed because markets have fallen?

Sometimes the correct response is to change strategy.

Sometimes the correct response is to do nothing.

Good advice requires distinguishing between the two.

Why trust is becoming more important in financial advice

The more information technology gives us, the more important another question becomes:

Which information should we trust?

AI can produce a confident answer that is incomplete, based on poor information or simply incorrect.

The same applies more broadly to financial information online. Investors now have access to thousands of opinions, market forecasts, investment products, social-media commentators and financial influencers.

The problem is no longer obtaining information.

It is deciding what deserves attention.

This is where trust becomes a significant part of the adviser-client relationship.

Trust is not simply believing that somebody knows about investments.

It involves knowing that the person advising you understands your circumstances, will explain the reasoning behind a recommendation, will disclose relevant costs and conflicts, and will tell you when they believe you should leave something unchanged.

A useful reminder from the recent SIFA NZ Conference was that trust is built, lost and rebuilt through behaviour.

That principle is particularly relevant to financial advice.

Good financial advice starts with your objectives, not an investment product

AI makes it very easy to ask:

“What is the best investment?”

It is often the wrong question.

A better starting point is:

What are you trying to achieve?

The appropriate financial strategy for someone who needs money in two years may be very different from the strategy for someone investing for 20 years.

The right approach for a retiree drawing income from their investments may differ from that of a business owner accumulating wealth.

Before deciding how money should be invested, an adviser should understand its purpose.

That means considering questions such as:

• When will you need the money?
• How much income will you require?
• What other assets and liabilities do you have?
• How much investment risk can you realistically tolerate?
• What happens if markets perform poorly?
• What financial commitments might arise in future?
• How important are liquidity and flexibility?
• What compromises would you be prepared to make if circumstances changed?

Once these questions are understood, investments can be considered within the context of the broader financial plan.

AI and retirement planning

Retirement planning is one area where AI and financial technology can be particularly useful.

Retirement is not a single calculation.

There are numerous variables, including:

• retirement age;
• expected expenditure;
• KiwiSaver and investment balances;
• NZ Super;
• inflation;
• investment returns;
• major future expenses;
• property decisions; and
• how long retirement savings may need to support you.

Rather than producing one projection and assuming it will happen, financial planning can test different scenarios.

• What happens if investment returns are lower?
• What happens if inflation is higher?
• Could you retire two years earlier?
• How much could you sustainably spend?
• What happens if you help your children financially?
• Would downsizing the family home materially change the outcome?

Technology can help model these possibilities quickly.

The greater value often comes from the conversation afterwards.

AI cannot predict financial markets

AI is extremely good at processing information.

That does not mean it can reliably predict the future.

Markets are influenced by interest rates, inflation, company earnings, political decisions, investor behaviour, wars, technological changes and countless events that cannot be known in advance.

Economic forecasts face the same problem.

For investors, the objective should therefore not be to find an adviser, economist or AI system capable of predicting exactly what happens next.

A better approach is to build a financial strategy that can cope with a range of outcomes.

Diversification, appropriate liquidity, sensible investment time horizons and ongoing review remain important regardless of how sophisticated technology becomes.

The danger of asking AI the wrong financial question

One limitation of AI is easily overlooked.

AI generally responds to the question it is asked.

If the underlying assumption is wrong, the answer may still sound convincing.

An investor might ask:

“Which shares will perform best this year?”

An adviser may instead ask:

“Why are you considering buying individual shares, and what role would they play in your overall investment strategy?”

Those are very different questions.

Financial advice often involves reframing the problem before attempting to solve it.

That requires judgement.

What should clients expect from a financial adviser in the age of AI?

As technology improves, clients should reasonably expect advisers to use it where it can improve efficiency and analysis.

But technology should support advice rather than replace accountability.

A good financial adviser should still be able to explain:

Your financial position.
Where you are today.

Your objectives.
What you are trying to achieve.

Your strategy.
How the recommended approach connects the two.

Your risks.
What could go differently from expected.

Your alternatives.
What other reasonable options were considered.

Your progress.
Whether the strategy remains appropriate as your circumstances change.

Clients should not have to accept a recommendation simply because a computer produced it.

The future of financial advice may be more human, not less

It is tempting to see artificial intelligence as a choice between technology and people.

I don’t think that is the right way to look at it.

The real opportunity is not to choose between artificial intelligence and human judgement, but to use AI to strengthen the research process while retaining human responsibility for the decisions that follow.

AI can process information.

Financial modelling can test scenarios.

Technology can improve reporting and administration.

Fund managers can use AI to strengthen research and make better-informed investment decisions.

An adviser can then spend more time doing the work that technology struggles to replicate: asking better questions, understanding priorities, selecting and combining suitable investment approaches, challenging assumptions, discussing difficult trade-offs and helping clients make decisions when emotions are involved.

As financial information becomes increasingly available, the value of simply possessing information will fall.

The value of judgement, perspective, accountability and trust may increase.

AI is a tool. Financial advice is a relationship.

Artificial intelligence will continue to reshape financial services.

Investors will have access to better information. Fund managers will have more powerful research tools. Advisers will have more sophisticated analytical capability. Financial planning and investment analysis should become faster and increasingly detailed.

That should be welcomed.

But important financial decisions still involve uncertainty.

They still involve families, businesses, retirement, risk, aspirations and emotions.

Technology can help answer the financial questions.

A good adviser helps determine which questions should be asked in the first place.

And when a decision materially affects someone’s future, trust remains difficult to automate.

At BeaconPoint Private Wealth, we use technology as part of the advice process, while our starting point remains the same: understand the client’s circumstances, understand what they are trying to achieve, and build the financial strategy around those objectives.

If you are considering retirement, reviewing your investments or simply want a clearer understanding of whether your current financial strategy remains appropriate, an initial conversation can help establish what questions need to be answered.

This is general information only and is not personalised financial advice.