AI and the Rise of the Independent Advisor Alliance

September 23rd, 2019 · 4 min read

Handled right, AI can be an effective tool in the indie- RIA’s fight for wallet share.

Trends in the robo market suggest that human-AI hybridization is a likely outcome of market forces now in play. Getting AI calls for staff training, system oversight, and a keen sense that, used prudently, AI may help repair dented consumer confidence.

It’s tempting to paint independent RIA owners as virtuous rebels — beleaguered like the members of the Rebel Alliance in Star Wars, fighting the good fight against an evil Empire (read “wirehouses”) that’s parsecs ahead of the upstarts in equipment.

But the Star Wars analogy doesn’t really hold up.

First, and as an objective fact, the Empire had cooler uniforms than the rebels. In real life, I don’t think Wall Street sartorial splendor has that much on Main Street style.

That’s no moon

But that one also falls flat as a comparison to the fight for wallet share between RIAs and national outfits. It’s been a decade at least since big brokerages operated at a clear-cut tech advantage over their smaller rivals. That’s because a host of tech vendors have targeted independent RIAs with the expressed intention of equipping them to tackle big-name firms, and RIAs have taken them up on it.

You might even argue indies have a tech advantage — making them a nimble squadron of steely-eyed X-Wing fighters looking to exploit their enemies’ vulnerabilities, as it were. After all, instead of getting saddled with costly, less-flexible and rapidly aging in-house platforms that wirehouses have to contend with, they can hire and fire outsourcers at will to get the newest tech at the best prices available.

But which wealth-management model will prevail in the newfangled fight for AI superiority? Here it might be good to abandon Star Wars parallels altogether, because AI — artificial intelligence — raises serious issues for businesses of almost every kind.

And scene

AI may be the biggest business disruptor in view, with potential to trigger more change than the internet has wrought in recent decades. Why? Because AI enables the completion of a variety of data-analysis tasks quicker than a human can compute. This means many human jobs will change — in some cases, out of recognition — while others will disappear entirely.

As a matter of strategic planning, you want to try to be on the “change” rather than the “disappear” side of that ledger.

And AI certainly provides scope for financial-advisor-friendly innovation. Human advice based on an experienced and professional evaluation of a client’s situation isn’t going away. And if a raw evaluation is enabled and delivered via AI, so much the better: it’s bound to speed things up while providing verifiable backup for the FA’s advice.

Plainly, your understanding of situational nuance isn’t subject to automation. Nor can even the most sophisticated automaton replace you in empathizing with someone who’s in a tight spot and helping them to feel better, both by means of your counsel and your demeanor.


After all, you can always get a cup of coffee from a machine — but you can never, ever, have a cup of coffee with a machine.

That’s not to gainsay so-called robo-advisors like Wealthfront and Betterment. Robos make sense for some sub-mass-affluent and emerging-affluent clients whose finances are straightforward. Still, it’s telling that many robos now offer access to human advisors in conjunction with AI-enabled planning and portfolio-design services. And it’s telling too how much more pervasive robo technology is as an “Intel Inside” for hybrid platforms at established firms than as a standalone offering.

Besides potentially enhancing advisor-client interactions, AI has the potential to help FAs and analysts cut through distracting data and zero in on delivering better insights around financial planning and portfolio management.

But, like any technology — or better: technology cluster — AI isn’t plug-and-play. Further, as a nascent offering, it’s not error-free.

In operational terms, RIAs must know what’s being delegated to AI within specific business processes. This calls for staff training around (and about) AI, strict policies, procedures and standards for monitoring its performance.

Trust but verify

Backup and replicability for AI outputs is especially important in this age of distrust. Trust in authority figure, including FAs, has waned. According to industry sources, 23% of social-media users say they have accidentally or deliberately shared a “news” story they knew to be ingenuine, 64% of Americans say “fake news” is sowing confusion in our everyday lives, and 51% feel this is unlikely to improve.

It’s so well known that misinformation is being widely and constantly disseminated people have grown reluctant to believe experts, preferring to seek comfort in the conformation of their pre-existing biases rather than be challenged by inconvenient truths.

The erosion of trust as a societal trend should matter to advisors of all stripes. Where trust in titles and credentials is weakened, your clients’ trust in you is increasing based on their direct experiences with you. AI, in concert with other tools, can help you enhance those experiences.

Despite its challenges, AI can help advisors at independent RIAs render consistently better advice to their clients in ways that let them compete with their wirehouse rivals.

Jack Ma, tech visionary and co-founder of the Alibaba Group, summed it up pretty well. “I don't think artificial intelligence is a threat,” he said at an AI conference in August 2019. “But human beings are smart enough to learn that.”