Financial technology firm Padua predicts the corporate regulator ASIC could eventually use artificial intelligence (AI) in its compliance and audit checks of financial advisers as the use of AI applications rapidly expands in the financial advice industry.
“Potentially, down the track, we think AI could be used to check if advisory firms are meeting regulatory requirements and to check for compliance in advice documents, and in other supporting materials such as file notes,” said Padua’s co-CEO, Matthew Esler.
“As it stands, AI is increasingly being used in advice firms around Australia and each stage of the financial advice process, although particularly in data collection, and is likely to be impacted by emerging AI applications. Many advisers are now using natural language AI in their day-to-day operations. Within the advice process, AI can also be used to record minutes of meetings and in the creation of fact find information and file notes.”
Mr Esler says important considerations for advisers include that AI-generated file notes and fact find information comply with Australian regulations and laws.
“There’s a real risk for financial advice firms inadvertently providing recommendations in the information gathering stage which would necessitate an advice document with five days.
“We expect ASIC will be monitoring this. Firms too will have to manage their use of AI through a combination of robust technical measures, comprehensive understanding of the regulatory environment and continuous oversight.”
According to Mr Esler, large language models (LLMs) can perform routine data analytics to ensure the validity of client datasets during the advice process to ensure the ‘client story’ is viable and consistent throughout the entire advice process. This can save advisers significant time in checking and correcting client data.
“Within investment management, AI can be used for portfolio optimisation by analysing data and developing portfolios that maximise risk-adjusted returns, as well as to helping to execute trades automatically based on pre-defined strategies or parameters.
“There is some great automation and optimisation technology which will assist financial advisers in matching the best advice strategy recommendations to the client’s goals and objectives. Padua Recommend technology is leading the industry on this front but there will no doubt be other competitors coming into the market to develop AI applications for financial advice,” Mr Esler said.
Padua’s tools, for example, can help advisers to produce records of advice (RoAs), statements of advice (SoAs), product comparisons and best interests duty (BID) statements within minutes.
“We are revolutionising how financial advice is delivered. We can compare the fees and features over 900 superannuation, pension and investment platforms as well as over 25,000 investment options using the Padua Compare tool. Our software streamlines compliance and workflow management, creating huge efficiencies and further reducing costs for advisers,” Mr Esler said.
“Progress is being made across so many different channels. Our research team uses AI within their primary and secondary research functions but also in automating data collection and analytics. We are also evaluating AI avatar video presentation capability for advisers to present advice via video to clients, and Padua is currently testing this option,” Mr Esler said.
“However, scrutiny is essential. As some licensees have already experienced, AI does not come without its risks with comments made by advisers during this process recorded, and the potential for advice to be provided in these meetings, requires caution. There’s also the concern around ‘deep fakes’ – impersonating another person using AI, with fraud a major challenge for advisers, and every person online.”
He says in order to overcome challenges, it is important the advice firm have a plan and consider protection considerations which should be given to implement robust data security and privacy measures, following best practices and regulatory guidelines.
“Firms should establish clear AI governance frameworks, ethical principles, and risk management strategies and invest in training and upskilling employees to build AI capabilities or collaborating with experts in the space,” says Mr Esler.
Globally, he pointed to NVIDIA’s fourth annual State of AI in Financial Services Report which provided recent insights into emerging trends in the global financial services sector.
“The report reveals that 91 per cent of financial services companies globally are either assessing AI or already using it in production.
“These firms are using AI to drive innovation, improve operational efficiency and enhance customer experiences.”
That data comes from a global survey of over 400 financial services professionals from around the world. Mr Esler noted these firms are using AI to drive innovation, improve operational efficiency and enhance customer experiences.
