Artificial intelligence (AI) capabilities and use cases continue to expand across nearly every industry, including the wealth management sector.
At the same time, however, there continue to be growing concerns about AI’s potential use by bad actors – or even by wealth management firms themselves accidentally – in ways that could harm companies and their clients, such as by compromising ethical standards.
We discussed how wealth managers can leverage the many positives of AI, while maintaining industry ethical standards, with Gabe Rissman, Co-Founder and President of YourStake, a provider of AI-based solutions for the wealth management industry.
In the Q&A that follows, Rissman discusses data privacy, transparency in values investing, practical steps for ethical AI use and more.
WSR: How can AI tools help wealth managers ensure that clients’ personal needs and goals are reflected in investment strategies, while maintaining ethical standards?
Rissman: AI tools can significantly enhance wealth managers’ ability to reflect clients’ personal needs and goals in investment strategies. Key applications include meeting note summarization, document extraction and next-best-action recommendations. These tools allow managers to capture client situations more accurately and respond effectively over time.
For example, AI-powered meeting note summarization can distill complex client interactions into actionable insights, ensuring no crucial information is overlooked. Document extraction capabilities can efficiently analyze financial statements and tax returns, providing a comprehensive view of a client’s financial landscape. Next-best-action tools can help managers proactively address client needs and adjust strategies in real-time.
However, maintaining ethical standards is crucial. To protect client privacy and data integrity, wealth managers should avoid inputting sensitive information directly into general-purpose AI models like ChatGPT. Instead, opt for specialized third-party vendors with robust data protection measures and compliance frameworks tailored to the financial industry. Look for providers with SOC 2 Type 2 certification, which ensures they follow strict information security policies and procedures.
By leveraging these AI capabilities responsibly, wealth managers can offer truly personalized investment strategies that align with each client’s unique goals and values, while upholding the highest ethical standards in data protection and privacy.
WSR: What are some of the ethical considerations firms should weigh when integrating AI in portfolio management, especially concerning data privacy?
Rissman: When integrating AI in portfolio management, firms must carefully balance enhancing investment strategies with protecting clients’ sensitive information. Key ethical considerations include:
Data protection: Implement robust encryption, access controls and secure storage. Limit data collection to essential information only.
Transparency: Be open with clients about AI usage, data collection and processing methods. This builds trust and enables informed decisions.
Firms must carefully balance enhancing investment strategies with protecting clients’ sensitive information.
Bias mitigation: Regularly audit AI models for fairness to eliminate discriminatory outcomes in investment recommendations.
Governance: Establish clear accountability for AI-driven decisions, human oversight processes and mechanisms to address unintended consequences.
Vendor selection: Choose providers with transparent data privacy structures and relevant certifications (e.g., SOC 2 Type 2).
To effectively leverage AI while maintaining ethical standards, define clear objectives and focus on solving specific pain points rather than just adopting the latest technology. Prioritize data security throughout the integration process. By addressing these ethical considerations, firms can harness AI’s potential in portfolio management while upholding client trust and regulatory compliance.
WSR: How can AI-driven systems enhance transparency in values-based investing?
Rissman: AI-driven systems are revolutionizing transparency in values-based investing by addressing three key areas: data creation, data transparency and personalization.
AI-driven systems are revolutionizing transparency in values-based investing.
In data creation, AI significantly expands our capabilities. For instance, AI can efficiently analyze municipal bond prospectuses to determine the use of proceeds, a task that’s traditionally time-consuming and costly for humans. This allows for a more comprehensive assessment of investments against various value-based criteria, providing a clearer picture of portfolio alignment with principles.
For data transparency, AI-empowered solutions help create a single source of truth that’s easily accessible and understandable. Many investors struggle to grasp how their portfolios align with their values. AI-driven interfaces can present this complex information clearly and intuitively, allowing investors to see at a glance how their investments reflect their personal values, and source and highlight where the data and information is coming from in one solution.
In personalization, AI enables unprecedented customization. An advisor can engage in a natural conversation with a client about their values and concerns. The AI can then translate this dialogue into a structured set of values and evaluate the portfolio accordingly. This creates a direct link between an investor’s stated values and their investment choices.
Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jberman@wealthsolutionsreport.com.
