AI has entered the chat. What does it mean for the financial advice sector?
AI is and will continue to change the way we work, seek information, and engage with financial products and this will only escalate at an ever-increasing pace. What does it all mean for the future? We put some leading questions to Financial Advice New Zealand CEO Nick Hakes.
What are the biggest impacts AI is having on the financial advice industry?
Over the past 12 months the conversation on AI in advice has exploded within the profession but we should remind ourselves that AI has only really been mainstream for about 3 years, so we are just at the early stages. We believe its biggest impacts are yet to come.
For the consumer, AI will make financial information easier to access, however financial information should not be confused with actual financial advice. People already have more information than they can process. The challenge remains what it's always been: knowing what to do with it, especially when money and emotions are involved.
Keeping clients focused is increasingly important for Advisers. Helping people make sense of competing priorities and stick to a plan when everything feels uncertain.
AI is helping advice practices do that in two ways, which we cover in our executive short course, AI in Advice Certificate. Advisers are either being externally focused and embedding AI tools to strengthen their value proposition or internally focused and seeking efficiency gains within the advice process.
How do you see AI changing the nature of financial advice over the next 5–10 years?
We expect the competitive advantage in advice will shift further towards human connection. Advice-led conversations rather than product-led conversations where Advisers are managing and predicting client behaviour will define the modern advice practice.
Technology will handle more of the process work like data gathering, product research and scenario modelling. This will enable the Adviser to develop into more of a coaching or family CFO type of role.
As a profession we need to continually shift up the complexity curve of solving client problems by deepening our human skills of critical thinking and assisting in the area of the psychology of financial advice.
How is the rise of AI tools changing the way customers seek financial advice?
Consumer expectations are changing. People expect faster access to information and basic advice. AI tools are delivering that.
Digital advice platforms can offer low-cost alternatives for straightforward financial decisions. That's useful for people who might not otherwise engage with advice at all.
There is however a gap between ease of access and good outcomes. Understanding the behavioural side of money decisions is becoming more and more important. It is clear that professional financial advice addresses these things.
How is the rise of AI tools changing the way Advisers connect with their customers?
Advisers are spending more time on relationships, that’s for sure.
When technology handles the repetitive work, Advisers can focus on understanding what clients need. That means more time listening. More time helping people work through competing priorities. More time supporting behaviour change.
The best Advisers are using technology to enhance the human side of advice. They're building trust and deepening relationships because they have the capacity to do it well.
Through the AI in Advice Certificate we have seen some really practical examples of Advisers building their own local LLMs to better connect with their clients. It's exciting to see the potential for New Zealand advice businesses when they can learn directly from our international faculty in the US and elsewhere.
How do Advisers make themselves invaluable to customers in our world of modern tech?
The untapped demand for quality financial advice has never been greater in New Zealand.
Global research which Financial Advice New Zealand participated in last year, demonstrated that clients expect their Adviser to be using AI. We don’t need to shy away from utilising advice technology. What we shouldn’t lose sight of is ensuring we have a clear value proposition that provides a financial roadmap for clients to achieve their goals. Great advice is about managing and predicting behaviours and helping people live their best life possible.
How do human Advisers have the edge over AI, and how can this value be communicated and amplified?
Human connection and embedding AI into the advice process do not need to be mutually exclusive. We keep framing this conversation as one-over-the-other, when in fact the best outcome is when one reinforces-the-other in delivering great consumer outcomes.
Our profession is at its best when we are open to new ideas, remembering that the adoption of ‘financial technology’ has been happening for a long time. The central question we must keep in mind is ‘do clients understand the advice strategy that is being recommended to them and is there accountability to stick to the plan?’
Is regulation keeping up with the rise of AI tools in the financial advice sector? What are some of the broader risks here?
Regulation is principles-based in New Zealand, which gives us flexibility to adapt. The Financial Markets Authority is reviewing innovation and digital advice as part of their accessibility work and Financial Advice New Zealand is playing an active role in working groups to understand the issues and find workable solutions for regulation.
We do not accept that regulated personal advice to retail consumers should contain ‘hallucinogens’. AI generated financial information should be held to a similar standard if there is the potential for consumer harm.
There are real risks as we all know. Privacy for one. Embedded bias in algorithms another. The behavioural gap between accessing information and making good decisions is something Advisers are working on. The risk is that people confuse information with advice.