How AI Is Shaping Our World and Our Finances

Peter Pabich |

Artificial Intelligence(AI) is present in all of our lives whether we’re aware or not. This increase in the use of AI has risen significantly in the last ten years and is not showing any signs of slowing down. 

AI can improve our lives by making certain tasks easier and more efficient. This reach also extends to financial services where it can influence your wealth management strategies and plans for the better. It can however bring challenges and drawbacks.

In this article, we’ll go through why AI is so useful and talk through some important considerations for using AI particularly as it relates to your wealth management plan. 

How AI can make your life easier and more efficient 

There are a number of different ways that the use of AI can, and does, positively impact your life and society as a whole on a day-to-day basis. These include: 

  • Automation: AI can automate repetitive tasks, freeing you up to focus on more meaningful and creative activities. For example, AI-powered vacuum cleaners can clean your floors efficiently, leaving you time to do things that are more fulfilling.
  • Increased efficiency: Processing large amounts of data and information can be difficult to do manually. However, AI systems can do it with ease leaving you with the insights you need to make better overall decisions.
  • Personalization: Instead of you hunting around for recommendations on streaming platforms or at online stores, AI algorithms can analyze your behavioral data to serve you personalized recommendations quickly and efficiently. 
  • Convenience: If you need to set reminders, and alarms or check the weather, virtual assistants like Siri, Google Assistant, and Alexa can do that for you. 
  • Healthcare advancements: The medical field currently uses AI to assist doctors in diagnosing diseases, analyzing medical images, and predicting patient outcomes.
  • Transportation and safety: The speed of innovation and growth with regard to autonomous vehicles is in large part thanks to AI. This growth is leading to safer and more efficient transportation systems.
  • Environmental Impact: AI is now also being used to make sure our natural resources are optimized. It’s also helping to predict natural disasters and to make our agricultural practices better.  

It’s clear that AI has a number of wide-ranging applications for society, but let’s take a closer look at the impact it has on the financial services industry. 

Considerations of AI for Wealth Management

When we look at wealth management planning, it’s impossible to deny the large role technology plays. You can harness AI to optimize your wealth planning strategies in the following ways: 

1. Personalized Investment Strategies

When you provide the necessary information, AI learning models can help you create personalized investment strategies, tailored to your financial goals. These strategies can be personalized to take into consideration your risk tolerance and the timelines you are working toward. 

2. Data-Driven Decision-Making

When making important decisions, you need solid data to back you up. This is where AI comes into play as it’s able to analyze a large amount of data far quicker than any human could. This allows you to gain insights into market trends, the economy, and sentiment quickly so you can make the best decisions. 

3. Risk Management

In order to adjust for risk, AI can help you keep an eye on several market factors, such as any market volatility. You can also set up alerts based on AI findings that help you adjust your investment and risk strategy.

4. 24/7 Accessibility

The great thing about AI is that it is always on which means you get added flexibility allowing you to access the information you need at any hour of the day. 

Drawbacks of AI within financial services 

As helpful as AI can be, it is there to assist, not take over responsibilities entirely. As you start to incorporate certain tools, it’s important to understand some of their limitations. These include the following: 

Lack of Emotional intelligence: Human financial advisors can understand and empathize with you, your motivations, emotions, and financial goals. This is something that AI cannot do as it does not have inherent emotional intelligence nor does it understand your unique life circumstances. This means it can never give you the same level of personalized advice and support you a human can when it comes to making sound financial decisions. 

Over-reliance on historical data: Financial markets are unpredictable and can buck trends. Just because something performed well in the past, does not mean that it will in the future. Therefore, the heavy reliance AI has on historical performance to predict future success could lead to financial losses. 

Vulnerability to data bias: The cleaner and more accurate the data, the better the results of the AI system will be. Therefore, if your AI model is working on bad data, that is biased or incomplete, the insights it draws out could be incorrect or misleading. This is hugely important when you are using these insights to make decisions that impact your finances and your investor's finances. AI systems must be continually monitored and you need to be sure the data sets they are working with are good. 

Limited understanding of complex financial situations: Financial situations can be complex and filled with nuance. In this kind of scenario, AI can fail to gain the same understanding that a human can. This is particularly relevant when it comes to complex estate planning, tax optimization, and retirement planning. There are many factors that go into these areas and AI can fail to grasp all of them, leading to advice that is not accurate. 

Potential for systemic risks: If everyone is relying on the same AI insights, systemic risks could start to appear like correlated trading patterns. This could lead to market instability. The speed at which AI works could lead to intensified market fluctuations and cause events like market crashes.

Privacy and Security Concerns: The wealth management industry deals with extremely sensitive data. Letting AI systems loose on this data can lead to concerns regarding data security and the privacy of individual and investors' financial information. This makes strict controls and regulation essential. 

Final Thoughts 

Artificial intelligence is without a doubt a useful tool both in our everyday lives and within the financial services industry. However, it has limitations. It lacks emotional intelligence and the nuance to trust with your entire wealth management strategy.

Therefore, AI tools must be combined with the skills and know-how of a trusted financial advisor for the best possible advice. 

We’re on hand here at Entrust Wealth Partners to help guide you through your wealth management journey and to show you how you can integrate AI tools in a logical and productive manner. Contact your Entrust Wealth Partners advisor or contact our office at (860) 838-3730 to learn more. 

All investing involves risk including loss of principal. No strategy assures success or protects against loss.