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Artificial intelligence reshaping wealth management

Imagine a world where chatbots answer client e-mails regarding their investments, and software scours the Internet for the latest news, economic data and academic papers to create insightful investment reports. This might seem like the stuff of science fiction – albeit with a wealth management slant.

Yet this is the leading edge of financial technology – or fintech – powered by the fast-growing field of artificial intelligence (AI), which is able to process and interpret vast amounts of data at lightning speed.

AI is poised to reshape the financial industry, say those involved in developing the technology.

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For small independent firms, these advances potentially offer the biggest risks and rewards. And they could use all the help they could get. Often catering to clients with portfolios of $300,000 and up, competition is fierce. Large wealth management firms – like the Big Six banks – eat into the market share. What's more the big players are looking to adopt AI to win over even more clients.

On the other side, robo-advisors are also eroding independent firms' market share, appealing to tech-savvy investors preferring the low-cost model and the mobile convenience that robos offer.

Toronto-based robo-advisor firm Wealthsimple has been at the fintech vanguard. The company was launched in 2014 by tech wunderkind Michael Katchen, a millennial who made his fortune in Silicon Valley. It has since won over more than 30,000 investors with $1-billion in assets under management.

Yet in 2016, the company seemingly did an about-face. Rather than competing with small, independent wealth management firms, it unveiled a new platform to help them. Called Wealthsimple for Advisors, this customizable technology can handle everything from portfolio management to compliance.

This business arm is catching on fast, says Dave Nugent, the chief investment officer of Wealthsimple.

"It's serving a need in the industry for advisors who want to focus their time on value-added services on the client relationship end," he says. "On the one side we're working with certified financial planners" whose clients are invested in automated, low-cost ETF [exchange-traded fund] portfolios instead of higher-fee mutual funds.

In turn, planners can focus on their strengths: building retirement plans.

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"On the flip side we have money managers who say, 'My account minimum is X and I have to turn away clients because they don't meet that requirement.' "

For these firms, Wealthsimple constructs inexpensive ETF portfolios for small clients that mirror their strategies for high-net-worth clients.

But Wealthsimple isn't alone in the quest to leverage AI to automate processes that bog down advisors and prevent them from providing high-value services such as tax and income planning.

Tom Corr is the chief executive officer of Ontario Centres of Excellence, which supports tech startups in Toronto. He says a growing number of startups are focused on using AI within the financial industry for a variety of needs, from cybersecurity to portfolio management. And Canada's big banks are bankrolling a lot of this incubation because they recognize startups are better positioned to innovate.

"Rather than trying to do it all themselves, they're very happy to partner with these early-stage companies because that's where most of the talent is going," Mr. Corr says, adding that many graduating programmers prefer to work for smaller firms.

Large investment firms are making these investments because they recognize technology is crucial to helping them meet a growing challenge in the wealth management space, says Jim DeWaele, senior vice-president with Rage Frameworks Inc. – a company based in Dedham, Mass., near Boston, providing AI solutions for the industry.

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Rage specializes in flexible AI solutions that can be quickly implemented. Among its offerings is software that reads, digitizes and analyzes paper filings, and chatbots that answer client questions via e-mail quickly, accurately and insightfully.

"Firms are struggling to provide consistency and regulatory compliance, while at the same time having to provide that individual advisor with flexibility and the ability to provide a positive user experience," Mr. DeWaele notes, adding wealth managers must do more for less. That's where AI and other technologies can help. "It's not about robo-advising," he says. "It's about providing the advisor with tools."

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