AI is the future but advice will always be about people – Hale

The Financial Conduct Authority’s (FCA’s) recent Mills Review stressed that while artificial intelligence (AI) was not particularly new in financial services (those chatbots are AI, of course), the industry is now “approaching a genuine inflection point in how AI technology interacts with financial services.” The review estimated that 75% of UK financial services firms are using AI and that number can only grow.

Those statistics demonstrate that AI is transforming the financial services industry and it must be having some impact on the later life lending sector. At Key, for example, we have an internal AI forum that regularly reviews, prioritises and implements new AI opportunities from across the business.

Across financial services, AI is having a particular impact on tasks such as investment research and portfolio management as well as client acquisition and initial engagement. Furthermore, it is being used to assist with vulnerability identification and as part of compliance and quality assurance processes – all areas that are very relevant for later life lending.

Research from Lloyds Banking Group’s Consumer Digital Index illustrates the growing customer take-up. The study earlier this year found that nearly 29 million people in the UK are using AI for personal finance. ChatGPT is the most popular AI platform, used by six out of 10 people.

UK adults use AI for personal finance and money matters more than for health advice, shopping suggestions, holiday planning or recipes. They are most likely to use it for future financial planning, such as pensions, with 39% doing so, ahead of the 26% using it for debt management strategies.

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More than half of UK adults (56%) use AI for budgeting, savings planning or general financial education. And with around a third of adults using AI at least once per week, it is clearly becoming a significant force in financial services. At least up to a point.

AI still has limitations

Lloyds Banking Group makes it perfectly clear what its figure of 29 million UK adults using AI actually means – it is using ChatGPT or its rivals at least once in the past 12 months. It’s an impressive figure, but it shouldn’t be confused as being an indication that the nation is ready or willing to trust solely in AI for financial advice.

Perhaps more pertinent in terms of the prospects for the future of AI financial services, the Lloyds Banking Group research found that 83% of people using AI worry about data privacy and 80% are worried that the information they get from AI is out of date or just plain wrong. Around 69% are concerned the advice or guidance they receive is not personalised.

It is reasonable to conclude that the expectations for AI and machine learning in the advice space currently exceed the reality of their practical application.

Lack of personalisation and not being able to trust the information provided should be in stark contrast to the value customers place on holistic advice delivered by specialist advisers.

Certainly, AI has moved on from chatbots that can only deal with straightforward questions. It can have a positive impact on adviser efficiency and there is a clear business use case, but it should complement human interaction, empathy and judgement – not replace it.

The future of AI for later life lending

Ignoring AI is not an option for any business and advisers need to stay close to how the space evolves. Key makes full use of the productivity benefits of AI with a call transcription service in our Key Partnerships booking team, analysing and producing automated note summaries for advisers.

An AI-powered compliance checking agent supports the review of all financial promotions and we use an AI comprehension agent to test all written materials across financial promotions and adviser-related customer communications.

When used well, AI helps drive productivity and reduce costs and free up more time for advisers to engage with customers. While AI and technology-led businesses will challenge some transaction orientated intermediary models, in areas requiring specialist advice, such as later life lending, the importance of customer relationships and the depth of knowledge required to match a product recommendation to complex individual circumstances and objectives cannot be easily automated.

Advisers need to embrace AI, but equal focus must be given to developing customer relationships and having more comprehensive conversations, extending across the generations within a family, which will support a more holistic view of customers’ circumstances and objectives.

Comprehensive conversations open up opportunities for adviser firms and the relationships that advisers have with clients are impossible to replicate as yet with technology.

The immediate challenge for advisers is to establish propositions that are future-proofed against the competition coming from technology-led businesses but also from the direct models of the banks and life companies. Holistic advice that looks at the whole customer balance sheet, so encompassing mortgages and wealth, can help unlock the value of relationships and support growth while protecting margins.

In areas such as later life lending, this doesn’t necessarily mean an extension of the scope of advice offered. Putting in place referral arrangements with trusted specialists can be an effective way of delivering a holistic proposition, achieving consistently good outcomes and leveraging the full value from customers that have been acquired and relationships that have been nurtured for many years.

AI can play an important role in supporting effective and efficient customer journeys and business processes. As technology evolves, it will undoubtedly have a bigger role to play in all our lives in the future, but the firms that succeed will be those that use AI to strengthen human advice, not substitute it. Technology can improve efficiency, but trust, empathy and judgement will remain firmly human.