AI May I Take Control!

By Geoffrey Muns

With the sudden attention to AI through Open AI’s ChatGPT and Google’s own BARD, I thought of touching on this topic of interest as there have been queries from all across my advisory landscape. I’ve always believed that there would come a time when AI would take center stage and or lead at the forefront at least within limited and controlled capacities defined by laws and regulations to operate ethically and rationally. 

But it’s difficult to be able to comprehend the scope and ability for it to be operated when the very fact of investment management is to achieve alpha and beat industry returns. This then manifests into an ethical dilemma where the risks and rewards ratio increases exponentially. We all know that the applications of AI were already being used in trading within the securities markets by professionals on both sides of the table ie the operators and regulators and which was executed to the best of everyone’s abilities so to speak. I say this as never once in the history if AI applications have we ever come across whereby there was any incident that reasonably impacted capital or securities markets detrimentally. Let’s begin to get a tad in-depth and try and understand what could very well be the future of vesting. 

There isn’t any universally accepted definition of AI (artificial intelligence) generally referring to the ability of machines to demonstrate human-like intelligence and a level of autonomous learning. It would be like machines solving a problem without the use of coded software containing detailed steps of instructions. It would be very interesting to notably recognize how artificial intelligence is transforming the financial ecosystem in the world today and being a part of our everyday lives without us ever knowing it. So after much research, it would be fair to say that AI is a suite of technologies enabled by adaptive predictive power and exhibiting some degree of autonomous learning that dramatically advances our ability to recognize patterns, anticipate future events, create good rules, make good decisions and communicate with people. To put it simply, AI is a suite of technologies and capabilities that when adopted can enable firms to dramatically deliver new kinds of value and reshape operating models which directly increases profitability.

The adoption of AI in investment management is now empowering firms to do things they couldn’t do before like augmenting the intelligence of the human workforce and facilitating development of next-gen capabilities.

The operating environment for investment management firms continues to evolve with technological innovations and shifting investor preferences at the heart of this change. While traditional sources of differentiation in investment management are becoming increasingly commoditized, AI is now providing new opportunities which extend well beyond cost reduction and efficient operations.

The next frontier for investment management firms focuses on four pillars for transformation which can empower firms to develop new propositions and deliver new kinds of value. They are; 

• 1) Generating alpha – Firms seeking organic growth through outperformance, adopting alternative data sets and AI has proved to be a differentiating factor for generating additional alpha.
• 2) Enhancing operational efficiency – Firms will continue to deploy AI and advanced automation to continuously improve the efficiency of their operations. Beyond this, firms can transform these traditional cost centers into AI-enabled service offerings.
• 3) Improving product and content distribution – Customer experience is a new battleground and AI is helping advisors to generate more insights, customize content more effectively, and deliver it to clients with greater agility and speed.
• 4) Managing risk – AI is a game changer for risk management. AI equips firms with the tools to bolster compliance and risk management functions, augment and automate data analysis, and anticipate and manage ambiguous events.

Investment management firms can rapidly transform business models, operations, and internal capabilities. However, to fully benefit from AI, firms will need to carefully consider and manage the intersection between technology and talent.

I will only touch on point 3 which is my area of interest and expertise. AI in investment management is reshaping distribution and enabling firms to extend their distribution models into new markets and customer segments which have been traditionally underserved. AI is also facilitating scaled distribution of customized products and tailored client interactions. As sales team productivity continues to decline, driving growth in a challenging operating environment will require industry incumbents to adopt a new approach to distribution and client servicing models. AI can help firms fundamentally enhance their existing models and time-to-market. Let’s take a practical example – customer relationship management (CRM) tools can provide workflow and interaction with the sales team. AI-enabled analytics can provide differentiated insights and actions. Together, these tools can equip sales teams with easier and quicker access to relevant content. Advisor and customer segmentation, and customer experience have emerged as new battlegrounds in investment management. 

AI is changing how financial institutions attract and retain customers, and through this, offers the opportunity for firms to innovate and enhance the investor journey, from segmentation and outreach through to content distribution and reporting. What is certain now is that investment management firms can no longer rely solely on price and outperformance to attract investors. Firms that adapt their products and integrate AI, data, and analytics into their service delivery models will be better placed to optimize and execute their product and content distribution strategies. Enhanced digital engagement can also enable improved sales efficiency by using AI-enabled Robo-advisors and Chatbots to impact the sales and servicing cycle. Firms have recognized a new opportunity to gain direct distribution to investors, benefit from enhanced efficiencies in servicing small accounts, and offer value-added services for advisors. This has translated into a wave of investment activity, with asset managers and intermediaries acquiring or investing in Robo advice technology. 

How far can AI be manipulated to benefit which party, what are going to be the perimeters within which to operate, who and which authorities are going to be the watchdogs and how are they going to be regulated more stringently in banking and financial services are the billion dollar questions that will be need to be figured out and implemented diligently by the powers that be. This will also most definitely be a turning point when the distribution of wealth will see a redistribution for investors, as we all know that a profit in one asset class has a correspondingly opposite outcome either in the same or another asset class. 

Have a wonderful May with stock markets poised for a good rally, gold set to decline and oil sitting pretty in the USD mid-70s waiting to take its cue from any positive or negative market news! Talking of redistribution of wealth, Dubai is strategically poised to have a tremendous trajectory in 2023 with all aspects of stellar GDP growth, supported by the RE boom from the demand reports that I’ve studied and forecasted population to cross 4 mio by 2026. This could only mean that the next five years are going to see phenomenal economical growth which is going to catapult Dubai into a different league on the global front. 

Risk warning – As with all investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Past performance and the contents of this outlook is not a reliable indicator of future performance. This article/print is protected through international copyright & print laws and may not be reproduced, distributed or copied without exclusive permission from the writer.   

Geoffrey Muns is an Independent Financial Advisor and Planner certified from the UK, US and UAE based out of Dubai for the past 20 years. He also works in the PE/VC space and is a seasoned investment banker having worked with international banks and investment firms in the region. You may contact him at 1mgicapital@gmail.com