How ChatGPT Could Affect

the Financial Services Industry Forever

How ChatGPT Could Affect
 the Financial Services Industry Forever

   21st May 2023 by Gareth

   21st May 2023 by Gareth

ChatGPT poses a potential threat to the future of financial advisors by offering a readily available, AI-powered alternative. With its vast knowledge base and natural language processing abilities, ChatGPT can provide personalized financial advice, portfolio management, and investment strategies.

This could disrupt the traditional role of human financial advisors, potentially reducing their demand and relevance in the industry. In other words, it is feared that increasingly, people will rely on ChatGPT for financial advice as opposed to getting personalized solutions from a fiduciary. Moreover, ChatGPT has the potential to commoditize financial advisors by reducing the uniqueness and exclusivity of their services. 

Here's how ChatGPT can
contribute to the commoditization:

Here's how ChatGPT can contribute to the commoditization:

1. Standardized Advice

ChatGPT can provide standardized financial advice based on established rules, principles, and historical data. It can analyze common financial scenarios and offer recommendations that are applicable to a wide range of individuals.

This standardized advice eliminates the need for personalized and customized
recommendations, which are often the key selling points of human financial advisors.

2. Cost Reduction

ChatGPT can provide financial advice at a fraction of the cost of human advisors. By leveraging Al technology, financial guidance becomes more affordable and accessible to a larger audience. This cost reduction can attract individuals who are price-sensitive or have simpler financial needs, making it challenging for human advisors to compete on pricing.

3. Increased Competition

With the rise of ChatGPT and similar Al models, the financial advisory landscape has become more competitive. As more individuals turn to Al-based platforms for financial advice, human advisors face increased competition for clients.

This competition can lead to a price war and further commoditization of services, as
advisors try to differentiate themselves based on lower fees rather than unique value

4. Availability and Convenience

ChatGPT offers 24/7 availability and prompt responses, which can be appealing to individuals seeking immediate financial guidance or who have time constraints. The convenience of accessing financial advice whenever needed reduces the perceived value of scheduling appointments and waiting for human advisors' availability.

5. Partial Replication of Services

While ChatGPT cannot fully replicate the expertise, empathy, and personalized touch provided by human advisors, it can address certain aspects of financial advisory services. It can analyze financial data, provide basic investment recommendations, offer budgeting tips, and answer general financial queries.

This partial replication of services erodes the unique value proposition of human advisors, making it easier for individuals to consider Al-based alternatives. It's important to note that while ChatGPT and Al technology can contribute to the commoditization of financial advisors, the role of human advisors goes beyond simple recommendations.

Human advisors provide comprehensive financial planning, emotional support, and adaptability to unique individual circumstances. These aspects are not easily replicated by Al models and can still be valued by individuals seeking holistic financial guidance.

Implications of Commoditization by ChatGPT

Implications of Commoditization by ChatGPT

While you as a financial advisor may understand the true value of personalized financial advice, the average prospect may not appreciate it quite the same. To the uninitiated, AI recommendations may seem like a viable alternative to the cost of hiring a financial advisor. Prospects may be altogether oblivious to the limitations and risks of relying on ChatGPT for where to invest their hard-earned money.

Thus, the first implication is that the education of prospects will become significantly more important in the future, particularly insofar as altering their perceptions of ChatGPT. This education will involve highlighting the risks of such technology, its lack of personalization, lack of due diligence, and access to an extended support network. All these factors can then allow you to position your services favorably to the prospect. 

The second implication is that financial advisors will have to differentiate themselves by what they offer as opposed to just their marketing. After all, what happens when every financial advisor under the sun begins to use ChatGPT to produce content?  To your prospective client, an outsider looking in, every advisor begins to look the same.

When everyone’s content is driven by the same source, it stops being a differentiating factor. Your differentiation will come in the form of what you have to offer. In short, the road to differentiation is to offer and say things others can't steal or take away from you.

How do you begin to offer something unique
that your prospective client values?
Here’s our roadmap:

How do you begin to offer something unique
that your prospective client values? 

Here’s our roadmap:

1. Sell uniquely packaged better-fit products for your market

Start by regularly asking your clients their biggest current financial concerns. Offer customized financial solutions based on the unique needs and goals of each client. This personalized approach sets you apart from advisors who provide generic advice. Provide additional services beyond traditional financial advice, such as estate planning, tax optimization, or retirement lifestyle coaching.

These value-adds can differentiate you from competitors. Demonstrate how your strategies and recommendations have positively impacted clients' financial well-being.

2. Take common objections to the most commonly sold financial services and products and see how you can turn them into your competitive advantages

For instance, wirehouses are often criticized for potential conflicts of interest and limited product offerings. Advisors can position themselves as independent professionals who prioritize clients' best interests by offering a wide range of investment options from various institutions, enabling them to provide unbiased advice tailored to each client's needs.

Wirehouses also typically have rigid compliance structures and strict protocols. Independent advisors can emphasize their ability to provide personalized solutions and adapt quickly to changing market conditions, showcasing their agility and responsiveness. They can highlight their freedom to choose the most suitable investment strategies and financial products without being bound by corporate mandates.

Wirehouses are known for their substantial fee structures, which can eat into clients' returns. Advisors can present themselves as cost-conscious professionals who prioritize value for money. By offering competitive fee structures, transparent pricing models, and a clear explanation of the services they provide, advisors can differentiate themselves as providers of cost-effective solutions.

Lastly, Wirehouses can sometimes be criticized for their impersonal and transactional approach. Advisors can emphasize the value they place on building strong, long-term relationships with their clients. By offering personalized attention, regular communication, and a deep understanding of their clients' financial goals, advisors can provide a level of service that exceeds the impersonal experience often associated with wirehouses.

3. Continually aim for differentiation

Creating a unique offer is an ongoing process that requires continuous market research, adaptability, and client feedback. By staying attuned to the evolving needs and preferences of your target market, you can continuously refine and improve your value proposition.
Over the last 14 years, Portfolio Medics has followed this roadmap to offer clients what they truly desire and do not necessarily get from other advisory firms: all-weather investment strategies that provide consistent risk-adjusted returns over a full-market cycle. At Portfolio Medics, this is achieved by executing distinct, well-defined, and repeatable investment processes that are typically out of reach of the average advisor.

At the same time, we have differentiated ourselves as a boutique firm that offers its prospective reps the greatest of advantages in the advisory space: generous payout grid, top-tier marketing support, managed-for-you investments, individualized attention and streamlined compliance processes.

If you’re a Series 65/66 holder looking for a competitive edge, greater flexibility, and ways to succeed in all market conditions, then get in touch. We are currently seeking new representatives to join our team. All our positions are 100% remote.

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Views expressed by Portfolio Medics are theirs alone. This summary is for informational purposes only and shall not constitute advice and are not an offer to buy or sell, or a solicitation of any offer to buy or sell investment products. Different type of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either by suitable or profitable for your portfolio. All investment strategies have the potential for profit or loss and past performance is not guarantee of future success. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there is no assurances that it will match or outperform any particular benchmark. Past performance is no guarantee of future performance or profitability. The types of investments discussed also do not represent all the securities purchased, sold or recommended for clients. Stated information is derived from proprietary and non-proprietary sources that have not been verified for accuracy or completeness. While the firm believes this information to be correct, we do not claim or have responsibility for its completeness, accuracy or reliability.