Artificial intelligence (AI) continues to grow in popularity and financial services is not immune. In this article by Jason Andriessen of MYMAVINS we look at how AI is being used in financial services to provide an innovative solution to cumbersome Statements of Advice.

“My colleagues, they study artificial intelligence. Me? I study natural stupidity”

– Amos Tversky

They say that the sooner you recognised that mathematical psychologist Amos Tversky was smarter than you, the smarter you were.  With long-term collaborator Daniel Kahneman, Tversky developed prospect theory, a ground-breaking concept in the 1970s and foundational to the emerging field of behavioural economics.

Now, 27 years after his death, financial advisers are finally on the verge of using artificial intelligence to improve their clients’ financial decisions.

The confluence of two recent events has started a new conversation about the future of the documentation of advice.  Stephen Jones has identified 14 QAR recommendations for fast tracking, among them replacing “the unwieldy statements of advice with something that is fit‑for‑purpose”.

At the same time, machine learning – technology where computers can solve complex problems using algorithms trained on big data sets, has gone mainstream. Generative artificial intelligence tools, like OpenAI’s large language model ChatGPT which was only released in November last year, are quickly becoming ubiquitous, democratised and in everyday usage in businesses large and small.

Stopping the production of long, cumbersome, time-consuming and wasteful Statements of Advice (SoAs) that clients rarely read is the first important step.  But how can we use generative AI to replace the SoA with something fit-for-purpose?

Purpose of an SoA

In research conducted in late 2021 for the then FPA (and now FAAA), MYMAVINS explored how consumers would react if the written statement of advice was replaced by a video recording.  The findings of the research have been made available on FAAA’s member portal.

By doing the research, we gained insight into the utility of SoAs from the client’s perspective.

For clients, SoAs serve three purposes: (i) they inform the client so they can decide on the advice; (ii) they are also a useful prop to use when discussing the advice with third parties; the spouse, accountant, or a trusted friend; and (iii) SOAs act as a kind of insurance policy providing protection should things go wrong in the future.

What is fit-for-purpose? 

So, a fit-for-purpose replacement of an SoA is something that can simultaneously inform the client, support a conversation with stakeholders about the advice after the meeting and be an effective record of what was agreed if things go wrong in the future.

Ultimately, clients are seeking a resource that effectively summarises what they are seeking to achieve, the strategic recommendations, any product recommendations, and a conclusion on how the advice meets their needs.

Use case for generative AI

Something fit-for-purpose needs to be anchored in andragogy; the principles used in adult learning. The key tenets of adult learning provide insight into why the long, arduous SoAs typically go unread.  Adults learn only what they feel they need to learn to solve a problem and learn best in informal situations. They enjoy the challenge of problem-solving, and like to get involved in the learning process, rather than be passive consumers of content.

Imagine a world where clients don’t receive a 60-page SoA.  Instead, they are provided with a link to a personal portal with access to their digital records.  Rather than expecting the client to read the content, clients could interrogate their digital records, asking via a chatbot for explanations of financial concepts, and enquire about the strategies recommended, any product recommendations and how the advice will meet their objectives.

Now stop imagining that world. It’s already happening.  MYMAVINS currently uses this technology when delivering research reports to clients. We call the functionality Talk to the Report. We have also successfully prototyped custom trained SoA chatbots fit for task and audience – they work impressively well in maintaining accuracy while bringing clarity to users by accommodating how they think and come to understand.

Professional financial advisers are at crossroads that present an opportunity to be truly innovative in how we deliver and document advice.  If we can make the most of it, we will enhance the user experience and understanding of the advice they receive, while increasing the efficiency of delivery, in turn reducing the cost to deliver and achieving better client outcomes.

To find out more visit us at www.mymavins.com.au

Jason Andriessen is consulting partner at financial services research boutique MYMAVINS and chair and co-founder of Catalpa, a community of independent financial planners.