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How financial models have evolved to help meet client needs

In an ever-changing landscape, which technologies do advisors leverage to create client-focused financial plans?

Wider technology adoption in modern financial advisory practices has showcased an ability to enhance efficiency, expand market access, sharpen risk analysis, strengthen advisor-client relationships and more. As technology integration expands and artificial intelligence (AI) applications proliferate, how will these forces affect the creation of financial models?

Financial models before the tech boom

Before the tech boom in the 1990s, advisors relied on manual data and market analyses, traditional financial instruments like stocks and bonds, and a significantly more limited pool of financial products to develop financial models.

Then came the dot-com bubble – a rapid and exponential increase in the investments and stock equity valuations of internet-based companies. A combination of overvalued price-to-earnings ratios, lack of profitability, high volatility and irrational enthusiasm saw the Nasdaq index rise fivefold – and then crash.

While the bursting of the dot-com bubble underscored the importance of investment fundamentals and risk management, the late 1990s also saw an influx in technological innovation that laid the groundwork for today’s technology platforms, products and models.

Today's tech-powered financial models

Financial advisors have access to an array of technology tools that aggregate financial strategies, develop robust financial models, and improve client engagement.

Tools that today’s advisors use include financial planning software, trading and rebalancing tools, investment analytics, risk tolerance software and document management systems – resulting in a smoother and more comprehensive experience for both advisors and clients. Greater accuracy and technological sophistication make it simpler to work with complex models and access real-time data that can help benefit clients with more timely and personalized financial planning.

Emergence of artificial intelligence

While AI presents tremendous opportunities to improve efficiency and cost-effectiveness by reducing time-consuming tasks for advisors, it also comes with novel challenges for financial professionals:

  • Regulatory compliance – AI is still a new frontier, and regulations around the technology continue to evolve. The modern advisor must navigate compliance requirements to adhere to industry and legal obligations.
  • Ethical considerations – AI algorithms have the potential to introduce bias, meaning advisors must be more vigilant around ensuring both fairness and accuracy in financial or investment- related decision-making.
  • Interpreting AI decision-making rationale – Client trust is paramount for advisors. And because most automation and data processing happen beneath the surface, today’s advisors – as the knowledge-holders – must understand, interpret and communicate specific outcomes or decisions to their clients.
  • Copyright risk – Advisors using AI systems must ensure they have the proper permissions to share or replicate reports or data. Having the right licenses or using open-source alternatives can help advisors avoid AI-related copyright infringements.

A personalized financial plan that helps meet your goals

Technology and AI empowers financial advisors to build and adjust comprehensive, personalized financial plans for their clients. Reach out to your financial advisor to discuss your financial objectives today.