Generative AI on Wall Street, can help propel ‘massive’ revenue growth

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Generative AI on Wall Street, can help propel 'massive' revenue growth

Yuichiro Chino | moment | Getty Images

Like it or not, generative artificial intelligence has arrived on Wall Street — and experts expect it to change the way companies do business.

To be clear, artificial intelligence, such as natural language processing and machine learning, has been used by asset management and wealth management firms for years. But with generative AI now on the rise, it can have a big impact when combined with other AI technologies, said Roland Kastoun, U.S. wealth and asset management advisory leader at PwC.

“We see this as a huge accelerator of productivity and revenue growth for the industry,” he said.

In fact, according to McKinsey & Company, the banking sector is expected to offer one of the biggest opportunities in generative AI. Gen AI could add the equivalent of $2.6 to $4.4 trillion in annual value across the 63 use cases analyzed by the McKinsey Global Institute. While banking asset management may not be one of the biggest beneficiaries, it could be worth $59 billion and asset management could be worth $45 billion.

Some of the biggest names in the industry are already on board.

Earlier this month, BlackRock sent a memo to employees that it will roll out generative AI tools for Aladdin and eFront to its customers in January to help users “solve simple how-to questions,” the memo said.

“GenAI will change the way people interact with technology. It will improve our productivity and enhance the great work we are already doing. GenAI will also likely change our customers’ expectations about the frequency, timeliness and ease of our interactions,” the memo said.

In the meantime, Morgan Stanley introduced its generative AI assistant for financial advisors called AI @ Morgan Stanley Assistant in September. The company's co-president, Andy Saperstein, said in a memo to employees that generative AI will “revolutionize customer interactions, make advisor practices more efficient and ultimately help free up time for what you do best: your customers.” serve.”

Both earlier this year JP Morgan And Goldman Sachs said they were developing ChatGPT-style AI internally. JPMorgan's IndexGPT will use “cloud computing software with artificial intelligence” to “analyze and select securities tailored to client needs,” it said in a filing in May. Goldman said its technology will help generate and test code.

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Those who don't embrace AI will be left behind, said Mike Mayo, an analyst at bank Wells Fargo.

“If the bank across the street has financial advisors using AI, how can you not use them too?” he said. “It definitely raises the stakes of the competition and you can keep up or fall behind.”

In fact, as the younger generation ages, these digitally native investors will seek greater digitalization, more personalized solutions and lower fees, William Blair analyst Jeff Schmitt said in an Oct. 20 note.

“Recognizing that these investors will control an increasingly larger share of invested assets over time, wealth management firms and advisors are using AI to improve their offerings and adapt service delivery models to win them over,” he wrote.

Cerulli Associates estimates that around $72.6 trillion in wealth will be transferred to heirs by 2045.

Not just generative AI

The big appeal of generative AI – and a differentiator from other AI technologies – lies in its ability to generate content, said PwC's Kastoun.

It's one thing for technology to analyze a large amount of content, he emphasized. “It’s another thing to be able to generate new content based on existing data, and that’s what’s driving a lot of hype.”

But what he's seeing in both the asset management and asset management businesses is the use of multiple elements of AI, not just generative AI, he said.

“It is the power of combining these different technologies and methodologies that is really making an impact across the industry,” Kastoun said.

Companies are now considering how they can integrate generative AI into their companies and existing AI technologies. At T. Rowe Price, the New York City Technology Development Center has been building AI capabilities for several years.

“Ultimately, we want to help our decision-makers use data and insights to do their jobs better,” said Jordan Vinarub, director of the center.

His team made a major pivot with the introduction of generative AI.

“We saw this as an existential moment for the company to say we need to understand this and figure out how we can use this to support the business,” Vinarub said. “Over the last six months, I guess we've shifted our focus from pure research and proof of concepts to building our own internal application based on the large language model to support our investors and the research process.”

Newcomers

It's not just the big companies that are adapting to generative AI; Smaller start-ups are looking for ways to revolutionize the industry.

Wealth tech company Farther is one of them. Its co-founder Brad Genser said the company is a “new type of financial institution” designed to combine expert advisors and AI.

“If you don't build the technology together with the human processes and control both, you end up with something unfinished,” he said. “When you do it together, when you build people processes and technology together, you get something that is greater than the sum of its parts.”

Then there's Magnifi, an investment platform that uses ChatGPT and computer programs to provide personalized investment advice. Investors link the technology to their various accounts and Magnifi can monitor their portfolios. About 45,000 subscribers have more than $500 million in total assets tied to the platform, Magnifi said in November.

“It’s a copilot alongside individual consumers that they interact with over time,” said Tom Van Horn, Magnifi’s chief operating and product officer. “It’s not about taking control, but rather empowering these individuals to achieve better wealth outcomes.”

An AI colleague

Technology is evolving so quickly that it is difficult to predict what use cases there might be in the future. But as productivity continues to increase, advisors can increase their time and level of interaction with their clients.

“It could change the way we think about the way we build our business models,” PwC’s Kastoun said.

It's also about people working with the technology, and not about the technology necessarily replacing people, experts said.

“The dream state is that every employee has an AI co-pilot or AI colleague and that every customer has the equivalent of an AI agent,” Wells Fargo’s Mayo said. “I’m not just talking about computers. I’m not just talking about humans, but humans and AI can compete better than computers or humans alone.”

—CNBC's Michael Bloom contributed reporting.

Correction: This article has been updated to reflect that Magnifi said in November that approximately 45,000 subscribers had a total of over $500 million in assets tied to the platform. An earlier version misstated the amount of assets.