Artificial intelligence already takes on tough jobs from spotting cancer on MRIs to writing speeches. But AI is now tackling another problem that vexes many humans: retirement planning.
The largest financial services companies are harnessing artificial intelligence to prod clients to make sound investment decisions. Financial advisors are purchasing AI-driven software to enhance their practice. And wealth management firms are boosting internal efficiency with AI tools.
On a basic level, AI can prompt advisors to ask the right questions to help clients with retirement planning. As tax laws change, advanced technology can spur advisors to discuss taxation of retirement income or highlight provisions in last year's Secure 2.0 Act to boost retirement savings.
"AI helps us identify what retirement planning issues might be of value to the client," said Nitesh Kadakia, head of innovation and advisor platforms at Merrill, a part of Bank of America. "Then it helps us see if the advisor brought up these issues with the client and, if not, it can prompt the advisor to bring it up as insights."
At Merrill, AI also helps behind the scenes to boost productivity. Automated reminders reduce paperwork and coordinate retirement planning decisions.
"We have the ability to identify trigger events, like when clients are nearing Social Security age," Kadakia said. "We can then ask relevant questions around these events. If someone is approaching age 73, for example, we can link our advisor to a form that the client needs to sign" to take required minimum distributions from their IRA.
Using AI To Nudge Clients With Retirement Planning
In preparing for retirement, clients pepper their advisor with questions. Many of the answers require deep technical knowledge.
Merrill's more than 19,000 advisors harness artificial intelligence to respond accurately. They type questions into their computer and get quick answers.
"Using Ask Merrill, our natural language search engine, it will come back with forms the client needs, relevant legal or regulatory updates and other information that answers the advisor's and client's question," Kadakia said.
Many big financial services firms seek to grow their wealth management unit. They are investing in internal workstations that enable their advisors to provide faster, more personalized service.
Vanguard recently launched an AI-powered chatbot for customers to ask questions or request transactions.
"It allows us to communicate quickly and efficiently with participants at scale," said Amber Brestowski, head of institutional investor advice and client experience at Vanguard. "There's no human involved, although they can always speak to someone if they'd like."
Behavioral finance researchers have found that nudging people to make prudent financial choices can produce better long-term results. That's particularly true for pre-retirees as they decide how much to save for retirement and where to invest it.
"We're using AI and machine learning to drive better outcomes," Brestowski said. "It's nudging participants to the next best action" so that they're more apt to follow through with retirement planning suggestions. It might suggest that they pay down their credit card debt if they're already maximizing the employer match on their 401(k).
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AI Helps Advisors Assess Clients' Risk Tolerance
As America's largest financial companies seek to scale up their wealth management business, they aim to automate more of their client communication. Looking ahead, executives expect AI tools to add a personal touch to an otherwise impersonal retirement planning process.
At Vanguard, the goal is to engage clients as they ponder financial decisions. The company seeks to harness artificial intelligence to start a dialogue at the right time.
In the future, a client who's weighing whether to draw down on their retirement account might get an automated message.
"It might ask, 'Have you thought about the best, tax-smart way to begin drawing down on your account?' or 'Have you thought about the best Social Security strategy?'" Brestowski said. "AI could help us notice when you might take action, and then we could use hyper-personalized digital nudges using texts, emails and even calls from our advisors."
Smaller Firms Make Big Use Of Artificial Intelligence
But big firms aren't the only ones applying AI tools to enhance retirement planning. Independent advisors, including solo practitioners, are purchasing AI-powered software to serve pre-retirees and retirees.
For instance, advisors often assess clients' risk tolerance before establishing the asset allocation on their retirement portfolio. Typically, this involves asking the client to complete a questionnaire.
John Boyd, a certified financial planner at MDRN Wealth in Scottsdale, Ariz., uses an AI-driven risk assessment tool, TIFIN Wealth, to put a client's attitude about risk in sharper focus.
"It uses AI to ask different questions and does a better job of assessing risk," Boyd said. For example, it incorporates data such as the industry the client works in, the ZIP code where they own property and their health status. Then it spits out a risk number for that client.
"We find that the risk score often aligns better with the client's appetite for risk," he said. "It's a great starting point for implementing an investment strategy."
