How AI and Machine Learning Are Giving Wealth Managers an Edge

Robo-advisors are taking the investment world by storm. A low-cost alternative to a personal financial advisor, robo-advisors provide automated investment advice and asset management to the masses. The AI behind these automated investment platforms is changing the way the industry serves its clients.

One of the criticisms of AI as a financial advisor, however, is that it only sees a small part of the client’s financial situation. Furthermore, the investment strategies may not be appropriate for wealthier clients who fall outside the norms of the average investor. As a result, AI and machine learning are not threatening to put wealth managers out of business just yet. In fact, there is an important role in personal financial planning for both man and machine.

Many wealth managers are beginning to incorporate AI into their business. Rather than using AI to create basic investment portfolios, wealth managers are using AI to help them provide better advice to their clients. The next generation of quants is using AI to build sophisticated models that have the ability to learn and adapt to the market.

AI and machine learning are giving wealth managers the edge in three particular areas:

1) Data Analysis

2) Forecasting

3) Risk Management

Data Analysis

One of the biggest problems facing wealth managers is the amount of information they are required to take in and process each day. The days of reading the Wall Street Journal to keep up with the markets are long gone. Today, there is more information available than a person can process, and it comes at a pace that wealth managers could never hope to keep. More data is being created in the year 2017 than in the last 5,000 years combined. This pace will not slow down anytime soon. Instead, it’s expected to increase by 300% before the year 2021. Wealth managers need help gathering and processing all of the market data coming in from around the world 24 hours a day, and that is where AI has a role.

With the assistance of AI and machine learning, wealth managers can isolate the most important and relevant data. AI sifts through the enormous volumes of data to separate the noise from the information the manager needs to make investment decisions. In addition, AI can inform wealth managers immediately when it detects these relevant events so they can quickly respond.


As AI develops and learns more about the market, so does its ability to recognize patterns and predict future market responses. Wealth managers can be more efficient and effective by incorporating machine learning into their portfolio models. AI’s ability to forecast market reactions allows wealth managers to make better investment decisions and earn better returns for their clients. They can also manage portfolio risk by utilizing AI-driven models to predict future market movements and the accompanying portfolio responses.

Risk Management

AI has the ability to detect and react to the first signs of market volatility. Wealth managers, therefore, are able to respond faster than the competition in detecting trends and executing trades. This responsiveness saves money on the downside and increases returns on the upside. Furthermore, AI improves a wealth manager’s evaluation of assets at risk and hedging strategies.

AI Is Here To Stay

Large hedge funds, investment firms, and bank wealth management departments are already incorporating AI and machine learning into their investment decision processes. They understand the benefits this technology can bring to their clients, and it is just a matter of time before such tools become commonplace with financial advisors at all levels. The only real question that will remain is how to balance the role of the man with the role of the machine.