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Rebooting Robo-Advisory: Leveraging Generative AI to Power Next-Generation Personalization (Part 2)

Rebooting Robo-Advisory: Leveraging Generative AI to Power Next-Generation Personalization (Part 2)

In part one of this series, we established the many challenges that impact robo-advisory services. However, no financial advisor is infallible, and customers will continue to seek diversification strategies for their investments, so there will continue to exist a sizeable population of investors for whom robo-advisory tools are a suitable solution. So, the question needs to be asked: How can institutions offering robo-advisory services maximize the impact and effectiveness of their offerings to meet the attitudes and expectations of today’s investors?

Enter generative AI (genAI). It holds the potential to transform these services, bridging the gap between technology and the human touch for a more tailored experience. This evolution empowers financial advisors to build deeper, more meaningful relationships with clients while simultaneously optimizing user experiences and investment outcomes.

True GenAI Transformation

Rooted in neural networks and pattern-learning capabilities, genAI can facilitate natural conversations, create personalized content, analyze sentiment and assist in data-driven decision-making – all key to surpassing the limitations of the current one-size-fits-all approach to robo-advisory. Advisors can take this a step further and artfully incorporate human outreach where needed or even as prompted by AI models.

Here’s what the user experience might look like for a genAI-powered robo-advisory platform:

  1. Simplified Customer Onboarding: e-KYC processes can be used to expedite onboarding. With insights from expense profiles, behavioral data, investment history and other external sources, the system could infer investment experience, liquidity needs and risk appetite. Robo-advisors could leverage this to create risk alerts and tailored investment guidance upon sign-up, boosting initial customer satisfaction.
  2. AI-Enhanced Conversations: Natural interactions could replace static surveys. Clients would benefit from intelligent, personalized financial plans that move beyond basic risk profiling, informed by genAI.
  3. Goal-Based Customization: Guided by genAI, the app could support multiple, evolving client goals that consider factors like time horizons, risk tolerance and investment preferences.
  4. Transparent Updates: Periodic and real-time investment updates, facilitated by genAI, could provide customers with transparent insights into the performance of their investments and the rationale behind each decision.
  5. Hybrid Flexibility: Depending on life changes or evolving goals, customers could choose to continue with their automated plan or seamlessly transition to human-augmented advice at the click of a button. In fact, the ability to connect to a digital banker or concierge was viewed as one of the top services most in demand by consumers, according to EPAM’s 2024 Consumer Banking Report. Taking a hybrid approach ensures customers experience the best of both worlds – personalized, intelligent digital interactions and the option for human support when needed. This connected, customizable experience not only builds trust but also encourages increased investment, ultimately enhancing business profitability.
  6. AI-Empowered Human Interaction: GenAI could pre-populate meaningful summaries of customer goals and challenges for advisors, optimizing their initial engagements and allowing them to focus on building trusting relationships.
  7. Holistic Financial Oversight: Through secure account aggregation, clients could gain a consolidated view of both internal and external assets. This enables genAI to generate actionable insights based on real-time changes in spending, saving, and broader market shifts, proactively optimizing their financial well-being. It’s worth noting, this aggregation delivers on a digital customer experience in high demand. As reported in our 2024 Consumer Banking Report, the ability to integrate all financial information into a single platform was deemed important by 62% of respondents.

While robo-advisory services offer compelling advantages, challenges in distribution and market penetration persist in an industry with traditionally high customer acquisition costs and low margins. Here’s how genAI provides effective solutions to these hurdles:

Targeting the Right Investors

  • GenAI in Action: Leveraging its ability to process vast amounts of both structured and unstructured data, genAI can analyze various real-time and historical information sources. These might include online discussions within relevant forums, market trends specific to younger investors and attributes of successful campaigns or platforms tailored to similar demographics. This multi-pronged analysis can create a detailed and up-to-date understanding of target investors' preferred communication channels, financial priorities and potential behavioral biases.
  • Key Differentiator: Unlike current mass-market approaches, this enables platforms to create highly-targeted marketing campaigns with messages personalized to resonate with identified individuals. GenAI can essentially convert vast pools of raw data into strategically curated audience profiles.

Demonstrating Tangible Value

  • GenAI in Action: GenAI can create targeted content by understanding a group's common anxieties (retirement woes, tackling debt) and aspirations (homeownership, travel). Platforms can utilize this deep understanding to deliver educational materials, financial simulations and even success stories personalized to investors, demonstrating how the robo-advisory service adds value.
  • Key Differentiator: This content is designed to actively connect with people on an emotional level, positioning the robo-advisory solution as an empathetic guide that alleviates financial worry and helps investors achieve goals. This stands in stark contrast to generic investment information with limited persuasive power.

Proactive Outreach

  • GenAI in Action: Through pattern analysis of behavioral data within the existing user base, genAI could flag clients exhibiting patterns or tendencies to advisors, suggesting they could benefit from a seamless transition to an automated model. Examples include changes in financial goals, reduced risk appetite or less frequent logins.
  • Key Differentiator: Proactive and early identification of such transition candidates allows platforms to engage clients well before their needs outgrow a simple self-service model, minimizing attrition and improving retention rates.

Before diving into the world of genAI, it’s worth noting consumer attitudes around the technology. According to EPAM’s 2024 Consumer Banking Report, only 21% of respondents around the globe have knowingly used an AI-enabled tool to help them manage their money, make financial decisions or provide them with financial advice in the last 12 months. However, of those that have used such tools, a full 96% were satisfied with the results it provided.

It’s clear there’s a world of early adopters out there eager to engage with such tools and services. Those on the fence can be won over through continued transparency and communication as new tools and platforms are made available.

GenAI has the potential to transcend standard robo-advisory approaches. By tailoring interactions, recommendations and overall financial guidance to each individual, it can facilitate deep customer understanding and long-term loyalty. In the ever-evolving landscape of financial advice, genAI's ability to hyper-personalize the investment experience can help position robo-advisory platforms – and the institutions utilizing them – at the forefront of innovation.

For more information on evolving consumer attitudes and expectations, take a look at EPAM’s 2024 Consumer Banking Report.

For additional insights and use cases around genAI, please visit our Call to Action for Generative AI.


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