New beginnings, especially ones dictated by the passage of time – such as the start of a new year – often prompt both reflection and anticipation, as we look back upon the past and also consider what’s ahead. How will historians look back on 2023? Perhaps more importantly, how will we, as active participants in the wealth management industry, view the challenges, opportunities and outcomes of the past 12 months?

Rising interest rates proved to be a double-edged sword for financial services as the increased cost of capital tamped down M&A activity and upended the regional banking sector but also put additional dollars at the disposal of broker-dealers via cash sweep programs. Artificial intelligence (AI) went mainstream in the space as professionals tasked with duties from marketing to compliance relied more and more on advancements in this revolutionary technology to create efficiencies and build scale.

Scale …

While Taylor Swift was TIME magazine’s 2023 Person of the Year, “scale” could be considered the wealth management industry’s trend of the year. More and more entities, from large RIA aggregators and IBDs to family offices and insurance companies, shrugged off short-term difficulties and the volatile environment to execute additive deals in pursuit of the scale needed to deliver better service and drive greater profitability.

It would be imprudent to underestimate the role of technology in general, and AI specifically, in wealth management industry players’ eternal quest for scale. As the number of financial advisors decreases and assets under management increase, deploying a resource like AI, with its unrivaled power to reduce time investment, elevate efficiency and maintain service levels, is central to moving the needle when it comes to positioning businesses for success.

As with many new technologies (though AI isn’t really new, it’s just become a more widely discussed topic), there are those who hesitate to put it to work. Unique to AI, however, is the rationale for holding back: the fear it is so powerful it may eventually be detrimental to humankind. Last March, 1,000 tech leaders including Elon Musk and Steve Wozniak signed a letter warning that “Powerful AI systems should be developed only once we are confident that their effects will be positive, and their risks will be manageable.1” While some of their concerns are valid, the reality is that just as the proverbial bell can’t be “un-rung,” now that business leaders have experienced the transformative impact of AI they will be looking for more ways to deploy it – and not walk it back.

In wealth management, the ROI of AI renders it a must-have for firms looking to capture share of wallet in an increasingly competitive environment. Financial advisors and firms are at a tipping point. Those advisors and firms that do not invest in AI and other digital technology capabilities are running the risk of being left behind, incapable of achieving the scale they need to succeed. Those who embrace AI will thrive in an evolving environment of increasing regulatory oversight, rising client expectations and industry consolidation.

Will AI remove the humanity from our industry? The short answer is no. Interpersonal relationships are the foundation of the advice business. AI can instantaneously conduct data analytics to find patterns and anomalies to support financial advisors. But it can’t guide clients in using that information properly. AI can help advisors and firms make the best decisions but can’t do it for them. In fact, AI will put time back in advisors’ days helping to strengthen advisor-client bonds.

2023 was the year of scale in wealth management. Mindfully and purposefully aligning the needs of all stakeholders using cost-effective tools is central to scaling successfully and building sustainable and adaptable businesses that deliver on their value propositions. The stage is set for a dynamic 2024.

1 FLI_Pause-Giant-AI-Experiments_An-Open-Letter.pdf (