AI and advice: The challenge of making good tech decisions
AI integration will have a lasting impact in financial services
Artificial intelligence (AI) is transforming what technology can offer and this requires careful consideration from various angles, write Roderic Rennison and Chris Baigent-Reed
AI is arguably to technology what the Consumer Duty is to compliance. Both are constantly in the news and the owners of financial services firms may be forgiven for becoming somewhat inured or weary of reading articles on the subject.
However, AI is here to stay, and it will increasingly matter what strategies intermediaries adopt to incorporate this new technology into their businesses, as these decisions will have far-reaching impacts.
This article considers the main factors that financial services firm owners need to consider both from a selection and implementation perspective, and the pitfalls to try and avoid, as well as the impact that these decisions are likely to have on embedded values, and the eventual saleability of the business.
The technology sector for financial services firms is evolving rapidly and we are seeing new players entering the market with AI solutions and practice management (CRM) platforms. This gives more options to financial services firms, but also poses some challenges, such as:
- How to effectively implement a new practice management platform
- How to conduct due diligence and align it with their client proposition
- How to integrate AI into their tech stack and train it for better adoption
- How to ensure data quality and integration.
These are essential factors for firms to think about when they want to update or replace their technology stack. AI is transforming what technology can offer and this requires careful consideration from various angles. How compatible is the new technology and what is its goal?
Some of the AI solutions that are available can certainly enhance efficiency, but most are not fully integrated and the data they collect cannot be fully exploited.
Some firms are wary of how their staff will react to the arrival of AI and what it will imply for their roles. The cultural change will be significant and exciting, as it will create more interesting opportunities for staff by taking over the boring and repetitive tasks. New skills will be required in the firms to support and manage the demand of AI and firms should be proactive in thinking about the impact and the needs of these new roles.
The idea that AI will replace the human element in this sector is unrealistic, as our situation and circumstances are unique and sometimes complex this needs to be reflected in the advice that is given. Can AI help to close the advice gap? Maybe for simplified advice that can provide better outcomes for those who do not need full financial planning services.
'Careful planning'
The degree of change should be considered, and careful planning should be completed before the introduction of any AI solution. Spending time to map out how the new tech stack will look and what difference it will make to your current processes, roles, client experience and data should be part of the plan.
Be realistic about the implementation time, allow for some buffer time and do not forget to include comprehensive training, both before and after going live, as well as an ongoing budget.
With technology changing quickly, our ability to support the continuous development by committing to let staff learn and grow with the technology is something that is often overlooked in the project costs. Going live on new technology is just the beginning and the efficiencies can only be achieved once the technology is fully embedded.
Specialist support firms like ours have a proposition that helps firms who want to adopt new technology, but also those who have been using a practice management platform for a long time and have only used a small fraction of its features. This is a common scenario that we encounter every week, and it is due to a mix of factors. Insufficient planning, limited project management skills available during the project, insufficient attention to the data migration process, over or under engineering processes, limited training and the list goes on.
We have five key pillars that firms should consider when they want to implement a new platform, and these are:
- Data (migration, cleansing and flow)
- Integration (availability, direction, and ease of use)
- Process - what is your ‘one best way'?
- Planning - even if just using excel, map out the plan
- Allow enough time for execution - plus some for contingency
A good outcome for a new technology implementation is where the solution has been configured to meet the firms' requirements, the end users have received a proficient level of training and feel confident in its use and have support to see them through the first few weeks of the transition. The data migration has been successful, and phase 1 deliverables have been met. There will always be more phases to cover extra functionality can be adopted and the firm can keep pace with any developmental changes or regulatory needs that may crop up.
So, having implemented changes to incorporate and embed AI into your business, what could the impact on the value of the business be? The answer, as is so often the case, is: "it depends."
If you have adopted AI that your back-office technology supplier has made available, this is arguably a safer route than striking out on your own with bespoke solutions. Most acquirers/consolidators want to be able to integrate their acquired firms as painlessly as possible, and the process becomes more challenging and time-consuming where existing technology supplier relationships are terminated, and new ones implemented in their place. This can, and often does have an impact on the valuation.
Timing is a crucial factor in this context. If you are thinking of embarking on a sale within, say, the next two years, it may be wiser to maintain your existing technology relationships in what might be termed a "steady state" position, so that you are not potentially making a sale and the ensuing integration more complicated than it would otherwise be.
If you are not looking at a sale within the near future, then you need to plan and implement your technology solutions to enable you to not only maintain but also grow your business. There is then the choice between using one overall mainstream technology supplier, or a series of established ones, versus developing your own architecture.
Most buyers, unless you develop systems that they want to adopt, will want you to move on to their systems. If the costs that you will have incurred in both building out and then maintaining the systems are not reflected in the valuation on sale, there is arguably little purpose served embarking down this route in the first place.
Technology has always been a key component in the success of a financial services firm and a factor that affects its embedded value; the advent of AI and how it is adopted, has made it even more important both to achieve greater efficiencies and profitability, as well as impacting on the attractiveness of businesses to buyers. Obtaining expert input to make the right decisions has therefore assumed increased importance.
In conclusion, while the constant stream of news about technology and compliance may be overwhelming, it's essential for financial services firms to recognise the lasting impact of AI integration.
This article has highlighted key considerations for firms, emphasising the need for strategic planning, careful execution, and expert guidance. From aligning technology choices with client propositions to anticipating cultural shifts within the organisation, there's much to ponder.
Moreover, the decisions made regarding AI adoption can significantly impact a firm's value, influencing its attractiveness to potential buyers. In essence, embracing AI isn't just about staying current it's about positioning firms for long-term success in an increasingly digital landscape.
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