How AI Could Benefit Financial and Real Estate Customers

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Since the very first business transaction occurred centuries ago, our methods of monetary management and investment have been continuously evolving. Sometimes in small ways over time and in other ways by leaps and bounds seemingly overnight.

Today’s business world is no different thanks, in part, to advancements in artificial intelligence, (AI). From stock-trading bots to the recent highly anticipated release of OpenAI’s newest language model — GPT-4 — AI is pushing the financial sector further into the future.

While these advancements are exciting, they also leave unanswered questions: Is this new technology helpful or potentially dangerous? Is there a risk of misinformation from AI because it can’t analyze sources … yet? The truth is, we don’t know exactly how AI will ultimately affect wealth management, but one thing’s for sure — ready or not, here it comes.

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How AI could change investing and wealth management

With the further development and expansion of AI capabilities, traditional investment and wealth managers’ roles may change. In fact, some top-tier CEOs and executives believe they may dissolve altogether, opening the doors to a future where individual investors can harness the power of AI to make informed decisions on their own and, potentially, at a fraction of the cost.

Herein lies another question: Can one really trust AI to make financial decisions? According to OpenAI, not only can the ChatGPT technology interact with humans, but it can also answer follow-up questions, reject inappropriate requests, challenge incorrect conclusions and (get this) admit its mistakes. While it is currently impractical to rely solely on AI for investment and wealth management strategies, it is possible for humans and bots to work together to produce optimal outcomes.

Tech leaders and fulfillment services like Amazon and Spotify have already transformed how we order goods, play music and even turn on the lights in our bedroom. This AI revolution is now starting to influence wealth management. In fact, if one asks Alexa how the stock market is performing on any given day, she’ll immediately report the current standings of the S&P 500, Nasdaq and Dow Jones.

The idea of individual investors harnessing AI to personally manage wealth may evoke anxiety in the hearts of financial advisers for two reasons — the obvious being loss of business, but also fear for their clients’ financial future and well-being.

But is the wealth management world there yet? Not quite. As the industry moves toward this new frontier, investors must distinguish between far-fetched and feasible when it comes to using AI for investing. And to do that, one should have the guidance of a trustworthy, financial professional who is well-versed in both the industry as well as AI development and implementation. This combination could help investors harness the power of AI while simultaneously working with a professional who has a deeper understanding of how to apply AI data.

Potential AI impacts on real estate investment

When it comes to real estate, particularly in the residential sector, AI could potentially pose a risk for real estate agents and brokers. AI could enable a buyer to find their ideal home within their desired parameters far more quickly than any Realtor could. AI can produce nearly instantaneous data, whereas a human agent cannot.

But AI’s potential can get even bigger. For example, when an investor purchases or sells real estate, they research the area surrounding a property. Is the area getting better or worse? Is the crime rate decreasing? Are incomes improving? Are property prices climbing?

Collecting that data at scale is challenging and could take a human real estate investor or adviser months at best. But with AI, those answers could be nearly instantaneous at some point in the future.

Individual buyers could ask AI to search neighborhood statistics within a one-mile radius of their potential property or desired area. Buyers could even find multiple properties for sale within that designated area that meet their specific requirements, relying on little assistance from a real estate agent for potential property selection.

However, without an agent, buyers also run the risk of completing a real estate transaction without a knowledgeable representative by their side, one who can identify potential issues, such as actual home value vs. listing price, before they become problems.

Additionally, it may come as no surprise that administrative tasks, such as credit checks, underwriting and lease approvals, will likely be totally automated in the near future, removing the need for administrative staff altogether. And wherever there is an intermediary in the real estate purchase process — think lawyers, appraisers and real estate agents — AI could potentially complete these tasks for a fraction of the cost.

AI can also run simulations and analysis at scale to quantify risk for potential deals in an effective and unbiased manner, providing investors and their advisers with more data points to consider before making a potential investment.

But the fact remains — real estate agents, just like wealth management professionals, know the business better than the average buyer or investor. While an individual buyer or investor may have AI-produced information at their fingertips, will they know how to use it to make the best decisions? Will they be able to trust the data? Will the investor be able to see how a single investment can complement an existing portfolio or understand how a property may or may not align with their goals and risk tolerance? That’s where it’s important to have an experienced financial professional or wealth manager.

How real estate investment firms can capitalize

Even though AI could cause consulting professionals significant competition, it also offers new opportunities for financial professionals to expand their roles and develop new books of business. From assisting with simple tasks like lead generation, customer service and administrative assistance to the development of processes to expedite data accumulation, AI may allow financial professionals to ultimately free up time for further business development while simultaneously providing a higher level of service to customers.

If ever there was an entry-point opportunity for AI, it is now. Whether a real estate investment firm is assessing a potential renter, or a financial professional is constructing a client’s portfolio, AI could offer a more robust view of an individual and their character and risk tolerance.

For real estate specifically, it could eventually provide a streamlined method for quantifying risk and expected returns of individual properties with investment portfolios. This will offer the buyer and agent additional information to more effectively work together to create a holistic investment strategy, instead of a buyer going it alone without an experienced professional in their corner.

When it comes to technological advancements, those who can effectively and efficiently respond to and evolve with change are the ones who will survive. When contemplating the implementation of AI in business practice, consider the gold-rush analogy: Don’t be the guy hunting for gold, but rather, the one selling picks and shovels.

Financial and real estate professionals need to focus on marketing their value to buyers and investors while effectively incorporating AI into their business. After all, AI can’t fill in all the pieces of the wealth-management puzzle. Tasks like estate planning are still very much in the human domain, providing an opportunity for professionals to package their products with AI to develop a whole new level of services.

Full disclosure. The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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