Morningstar - Q2 2024 - 26

Spotlight: Artificial Intelligence
and even automate the application process.
Providing clients with this service is not only a
differentiator; it also satisfies a huge need.
Powder is an AI-powered portfolio " co-analyst. "
When signing a new client, advisors typically
analyze the prospect's portfolio by piecing together
statements, entering data into spreadsheets, and
doing arduous comparison calculations to
demonstrate why the advisor-structured portfolio
is superior. Powder's AI engine reads documents,
listens to conversations, quickly analyzes the
data, gives actionable items, provides a fee alpha
analysis, and generates a presentation to show
the advisor's value.
Other advisor-specific AI tools:
gMo is a chatbot available to users of Morningstar
software that relies on Morningstar's data,
research, and editorial content. Advisors can ask
Mo an investing question and receive a response
in natural language in seconds.
gSigFig is a tool that helps create optimized
portfolios based on investors' individual needs,
restraints, and goals.
gQuantumStreet AI is a platform that uses AI for
risk analysis and stress testing to create portfolios
based on parameters such as themes or ESG.
gNitrogen Wealth (formerly Riskalyze) uses AI to
provide a range of services for advisors, including
risk tolerance, proposals, portfolio analytics,
retirement planning, engagement, lead generation,
compliance, and firm financial insights.
gAladdin Wealth is BlackRock's BLK platform that
employs AI to assist advisors in creating and
managing clients' portfolios.
How to Integrate AI Into Your Practice
As with any use of technology and third-party
providers, advisors must exercise caution
when it comes to the quality of the product,
privacy, and protection of confidential and
proprietary information.
Beth Haddock, CEO and founder of Warburton
Advisers, believes that advisors need to be
26
Morningstar Q2 2024
careful before jumping into AI. Caution is critical
to upholding fiduciary duties to clients, she
says, as well as complying with what will surely
be strict regulatory safeguards.
She cites SEC Chair Gary Gensler's speech on AI,
in which he said that a company must be
" truthful about its use of AI and associated risk. "
Instead of disclosing those risks using " boilerplate "
language about AI, Gensler said, " executives
should consider whether artificial intelligence plays
a significant part in a company's business,
including its internal operations, and craft specific
disclosures that speak to those risks. "
Haddock expects regulations to be issued soon.
(See also " Advisors Await SEC Rule for AI, "
Page 31.) " Implement safeguards as you would
with robo-advisors, " she says. " Human oversight
is critical. Be careful of errors. Know the
technology before you use it in your practice. "
She says that not all uses of AI will necessarily be
subject to SEC regulation. It depends on how
advisors will be using it. " If you use AI in advising
clients, that will be covered by the SEC, " she
says. " But if you use AI within your practice-
to handle internal administrative tasks-that's
outside the purview of the SEC. "
Haddock recommends first trying out AI in low-risk
ways, using it to increase back-office productivity.
For compliance purposes and to protect clients
and the firm, Courtney Sukitch, operations
team lead at Waldron Private Wealth, recommends
creating an AI policy before using AI. " You need
to document safeguards, " Sukitch says. " Written
procedures that are adhered to are essential. "
Start Now by Learning the Basics
Bruckenstein says that advisors should begin using
AI now: " The best way to start is with learning
the basics. You don't need to be an expert. Just try
it and be creative. "
Begin by trying AI for routine tasks using tools
such as ChatGPT, Gemini, or Chatsonic.
Sukitch turns to AI for almost any administrative
task, from interview questions and blog
posts to travel planning and risk assessment.
Once you've mastered basic AI tools, you may
decide to add a dedicated AI tool. The decision
requires a delicate balance. It might seem
ideal to jump into an AI tool that handles all
aspects of an advisory practice. But even if such
a tool advertises itself as a " total solution, "
there are two major caveats:
1 Will it really work? It's usually a bad idea to risk
your entire practice management on a new
technology. It might not work-and even it does,
separate tools that address one aspect of
the practice might work better. And at this stage
of AI development, something better might
soon come down the line.
2 Will you be able to implement it? Sometimes,
making a major effort to incorporate a new
software is worth it. Other times, the return isn't
worth the pain and taking on such a major
project is unrealistic.
The best way to choose your first AI tool is to
pick one aspect of your firm that isn't working as
well as you'd like or a service that you'd like
to add to your practice. Then find an AI solution
that helps you get the job done. Be realistic
about the time it will take for you and your team
to learn how to use the tool, and factor that
into your integration process.
Don't Fall Behind
What is important is that you don't ignore AI.
Says Bruckenstein, " If you're five years behind on
adopting AI, you're out of business. "
Advisors who are apprehensive about AI need
to remember that it will not replace investors' need
for personal, human advice. AI's primary benefit
to advisors is the ability to handle administrative
and research tasks more efficiently, freeing
up their time for more face-to-face interaction
with clients. At the same time, AI will allow
advisors to handle more clients and provide better,
more responsive service.
Now is the time for advisors to accept
and embrace AI-or risk being left behind. K
Sheryl Rowling, CPA, is an editorial director at Morningstar.
https://www.morningstar.com/stocks/xnys/blk/quote https://www.morningstar.com/people/sheryl-rowling
Morningstar - Q2 2024

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