Advisers need to be vigilant when using AI

As advanced technology becomes increasingly prevalent in the industry, Padua’s co-chief executive, Matthew Esler, has reminded advisers to safeguard themselves and closely monitor its use, as he anticipates increased scrutiny from the Australian Securities and Investments Commission (ASIC) in this regard.

“As it stands, AI is increasingly being used in advice firms around Australia and each stage of the financial advice process, although particularly in data collection, and is likely to be impacted by emerging AI applications,” said Esler.

“There’s a real risk for financial advice firms inadvertently providing recommendations in the information gathering stage which would necessitate an advice document within five days.

“We expect ASIC will be monitoring this,” he added.

Esler advised firms to manage their use of AI and its output through “a combination of robust technical measures, comprehensive understanding of the regulatory environment and continuous oversight.”

“Firms should establish clear AI governance frameworks, ethical principles, and risk management strategies and invest in training and upskilling employees to build AI capabilities or collaborating with experts in the space,” he said.

Esler warned that some firms have already had negative experiences with AI, with “deep fakes” continuing to be a cause for concern.

“Scrutiny is essential. As some licensees have already experienced, AI does not come without its risks with comments made by advisers during this process recorded, and the potential for advice to be provided in these meetings, requires caution,” he said.

“There’s also the concern around ‘deep fakes’ – impersonating another person using AI, with fraud a major challenge for advisers, and every person online.”

How advisers are using AI

Looking at the industry’s use of AI, Esler said many advice firms are utilising the technology to improve their process efficiency, with some using it during client meetings and the fact-finding phase.

“There is some great automation and optimisation technology which will assist financial advisers in matching the best advice strategy recommendations to the client’s goals and objectives,” he said.

“Many advisers are now using natural language AI in their day-to-day operations. Within the advice process, AI can also be used to record minutes of meetings and in the creation of fact-find information and file notes.”

He explained that others are experimenting with the technology, using it to assist with more complex tasks, such as research, data analysis, and investment strategies.

“Progress is being made across so many different channels. Our research team uses AI within their primary and secondary research functions but also in automating data collection and analytics. We are also evaluating AI avatar video presentation capability for advisers to present advice via video to clients,” Esler said.

“Within investment management, AI can be used for portfolio optimisation by analysing data and developing portfolios that maximise risk-adjusted returns, as well as helping to execute trades automatically based on pre-defined strategies or parameters.”

Esler added, “Potentially, down the track, we think AI could be used to check if advisory firms are meeting regulatory requirements and to check for compliance in advice documents, and in other supporting materials such as file notes.”