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

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

To be clear, artificial intelligence, like natural language processing and machine learning, has been used by wealth management and asset management firms for years. Yet with generative AI now on the scene, it can have a powerful impact when combined with other AI technologies, said Roland Kastoun, U.S. asset and wealth management consulting leader for PwC.

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

In fact, the banking sector is expected to have one of the largest opportunities in generative AI, according to McKinsey & Company. Gen AI could add the equivalent of $2.6 trillion to $4.4 trillion annually in value across the 63 use cases the McKinsey Global Institute analyzed. While not the largest beneficiaries within banking, asset management could see $59 billion in value and wealth management could see $45 billion.

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

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

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

Meanwhile, Morgan Stanley unveiled its generative AI assistant for financial advisors, called AI @ Morgan Stanley Assistant, in September. The firm’s co-President Andy Saperstein said in a memo to staffers that generative AI will “revolutionize client interactions, bring new efficiencies to advisor practices, and ultimately help free up time to do what you do best: serve your clients.”

Earlier this year, both JPMorgan and Goldman Sachs said they were developing ChatGPT-style AI in house. JPMorgan’s IndexGPT will tap “cloud computing software using artificial intelligence” for “analyzing and selecting securities tailored to customer needs,” according to 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 Wells Fargo bank analyst Mike Mayo.

“If the bank across the street has financial advisors that are using AI, how can you not be using it too?” he said. “It certainly increases the stakes for competition, and you can keep up or fall behind.”

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

“Given that these investors will control an increasing share of invested assets over time, wealth management firms and advisors are leveraging AI to enhance offerings and adjust service delivery models to win them over,” he wrote.

Cerulli Associates estimated some $72.6 trillion in wealth will be transferred to heirs through 2045.

The big appeal of generative AI — and a differentiator from other AI tech — is its ability to generate content, said PwC’s Kastoun.

It’s one thing for technology to analyze a large set of content, he pointed out. “It’s another thing for it to be able to generate new content based on the data that it has, and that’s what’s creating a lot of hype.”

Yet what he’s seeing in both the wealth management and asset management business is the use of multiple elements of AI, not just generative AI, he said.

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

Firms are now figuring out how to incorporate generative AI into their businesses and existing AI technologies. At T. Rowe Price, its New York City Technology Development Center has been building AI capabilities for several years.

“We ultimately are looking to help our decision makers get the benefit of data and insights to do their job better,” said Jordan Vinarub, head of the center.

His team made a big pivot with the arrival of generative AI.

“We kind of saw this as an existential moment for the firm to say, we need to understand this and figure out how we can use it to support the business,” Vinarub said. “Over the past, I guess, six months … we’ve gone from just pure research and proofs of concept to then building our own internal application on top of the large language model to help assist our investors and research process.”

It’s not only the big firms adapting to generative AI; smaller upstarts are looking for ways to disrupt the industry.

Wealth-tech firm Farther is one of those. Its co-founder, Brad Genser, said the company is a “new type of financial institution” that was built to combine expert advisors and AI.

“If you don’t build the technology, along with the human processes, and you don’t control both, you end up with something that’s incomplete,” he said. “If you do it together, you’re building people processes and technology together, then you get something that’s greater than the sum of its parts.”

Then there is Magnifi, an investing platform that uses ChatGPT and computer programs to give personal investing advice. Investors link the technology to their various accounts, and Magnifi can monitor their portfolios. About 45,000 subscribers have connected over $500 million in aggregate assets to the platform, Magnifi said in November.

“It’s a copilot alongside individual consumers that they’re interacting with over time,” said Tom Van Horn, Magnifi’s chief operating and product officer. “It’s not taking over control, it’s empowering those individuals to get to better wealth outcomes.”

The technology is so fast moving, it’s difficult to know what use cases could exist in the future. Yet certainly as productivity continues to increase, advisors can increase their time and level of engagement with their clients.

“It could change the way we think about a lot of the way we set up our business models,” PwC’s Kastoun said.

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

“The dream state is that every employee will have an AI copilot or AI coworker and that each customer will have the equivalent of an AI agent,” Wells Fargo’s Mayo said. “I’m not talking about computers alone. I’m not talking about humans alone, but humans plus AI can compete better than either computers or humans alone.”

— CNBC’s Michael Bloom contributed reporting.

Correction: This article has been updated to reflect that Magnifi said in November that about 45,000 subscribers have connected over $500 million in aggregate assets to the platform. A previous version misstated the amount of assets.