The service maps instrument-level holdings data against Dynamic Planner’s 72 asset classes, providing analysis on risk factors within a singular system.

The product aims to provide greater accuracy and efficiency in the use of single strategy funds among advisers.

Dynamic Planner sources single strategy fund holding data directly from fund providers, rather than via third parties at broad asset allocation level.

The firm said that, with the increasing responsibility assigned to fund managers and how their funds are used through regulation such as Consumer Duty, the new launch can support different asset management models that are emerging as a result of the changing regulatory environment.

See also: Dynamic Planner integrates system with CURO

Chris Jones, chief proposition officer at Dynamic Planner, said: “As financial markets have evolved and become more complex, we have ensured that we accurately analyse the underlying holdings of the solutions that we risk profile and map them to our risk factors within our trusted Asset Risk Model. Dynamic Planner users who also build advised portfolios have asked for the same level of granularity and we are pleased to be able to support them with the Single Strategy Mapped Service.

“The new service will provide them with a level of granularity not previously possible, greater efficiency and accuracy, and all within one system with a consistent level of risk throughout. However you organise your business and decide to meet the needs of your clients Dynamic Planner can support you.

“From a PROD and Consumer Duty perspective the Single Strategy Mapped Service also enables the fund manager to more simply and clearly communicate whether a fund is intended to be distributed as a solution or part of a portfolio.

“Recent geopolitical events have raised the awareness and importance of things such as duration, cap size and location within a traditional asset class not only amongst our users but also their clients. We hear that being able to view and discuss this using Dynamic Planner has been very helpful with solutions and we are pleased to support single strategy funds in the same way.”

Advisers using the integration will be able to move clients’ data and reports between CURO and Dynamic Planner securely.

Once in Dynamic Planner’s single system all client information and valuation data will automatically pull through to different processes.

The financial planner has said this will remove room for error and advice firms will be enabled to quickly and accurately provide clients with the information they need, when they need it.

To read more on this topic, please visit: 

Should advisers see AI as a threat to their business?

What advisers need to understand about risk

Dynamic Planner teams up with Quilter Financial Planning

Yasmina Siadatan chief revenue officer at Dynamic Planner, said: “Data, data security and MI are fundamental to the growth of our financial planning partner firms which is why we are committed to our long-term strategy of continuously improving the flow of information to and from Dynamic Planner.

“Today we are delighted to announce our two way integration with CURO, the latest in our growing suite of strategic integration partners, consisting of the major back offices and platform providers. We know we help transform efficiencies of partner firms and look forward to driving further integrations as we build out the Dynamic Planner ecosystem.”

Roland Rawicz-Szczerbo founding director of Time4Advice, added : “For too long the disconnected nature of the legacy technologies in common use has frustrated the potential of our industry, creating an advice service that is limited in reach, neglecting the vast majority of people that need, but cannot afford, quality financial advice. Leveraging modern, enterprise grade technology, Time4Advice’s integration of CURO with Dynamic Planner is the first step in the delivery of a fully integrated ecosystem for financial advisers.

“We are all about challenging the inefficiencies manifest in today’s outdated technologies and look forward to working with Dynamic Planner and our other strategic technology partners to drive change in an industry that desperately needs it.”

But despite some embracing AI, there is still some scepticism about the future of tech.

A recent survey by Schroders found that nearly half (43%) of advisers see AI as a threat to their business.

International Adviser spoke with Bravura, Dimensional Fund Advisors, Dynamic Planner, GSB Capital, HSBC Private Banking UK, Intelliflo, JustFA, SG Kleinwort Hambros, The Openwork Partnership, SEI, Shard Capital and St James’s Place for their views on AI as a potential threat and whether advisers should be using it in their business.

‘Unrivalled productivity gains’

“Here’s what ChatGPT had to say….,” said Andrew Dixon, head of wealth planning at SG Kleinwort Hambros, who sought out the views of AI itself on the subject. ChatGPT responded that a combination of artificial and human intelligence could be the future of financial advice.

Chat GPT said: “AI can be both a tool and a potential disruptor for financial advisers. While AI can assist advisers in analysing data, automating tasks and providing insights, it could also pose a competitive threat if it becomes sophisticated enough to replace certain aspects of the advisory role.

“However, human expertise, emotional intelligence and personalised advice are still highly valued by many clients, so a collaborative approach between AI and human advisers is more likely to emerge in the future.”

Dixon added: “I wouldn’t disagree with this statement. As high net worth advisers we do not know where this will go in the long term but in the medium term, AI offers unrivalled productivity gains”.

‘Providing holistic advice is a complex task’

Richard Wake, chief customer officer at Intelliflo, also highlighted the advantage that advisers can bring, in comparison with AI.

“There’s no doubt that AI will significantly impact the financial services industry, particularly in areas related to automation, machine learning and the use of large language models like ChatGPT,” he said. “Having said that, it’s important to acknowledge that providing holistic advice is a complex task that requires an in-depth understanding of each client, often established through personalised Q&A sessions and relationship building.

“While AI can support certain aspects, it’s difficult to envisage that being delivered by ChatGPT, unless it’s at the robo end of the market, regulatory constraints notwithstanding.”

‘An opportunity to better anticipate what clients want’

James Thomson, head of investment counselling, HSBC Private Banking UK, said that AI is not a threat but an opportunity.

He said: “We don’t agree that AI itself represents a threat to our business, at least with regard to computers taking relationship managers’ or investment advisers’ jobs. What we know is that most clients prefer to engage digitally with us for non-value adding services such as reporting, accessing research and product updates or self-directed trading.

“But clients still overwhelmingly want to engage with advisers for personalised advice and other value-adding services. The biggest risk is that we don’t adapt to the new opportunities that this technology provides as quickly as our competitors and that we therefore get left behind.

“AI represents an opportunity to better anticipate what our clients want, better understand what they want to hear from us about and enable us to provide clients with well-targeted investment advice. The winners from this technology will ultimately be those firms that use AI to enable their advisers to do these things better than anyone else.”

‘No substitute for the ‘human touch’

David Jones, head of UK and Ireland advisor group at Dimensional Fund Advisors, also views AI as a positive development.

“We’re with the majority of advisers who see AI as an opportunity, rather than a threat,” he said. “AI has the potential to make advisers’ lives easier and improve clients’ experiences.

“AI is a tool like any other in that you have to evaluate whether it does the job you want before you use it. For many advisers, there are a lot of tasks within their business that AI will be well suited to – like taking notes and making appointments. In these areas there is the potential for AI tools to make advisers’ and clients’ lives easier.

“There will also be parts of their business where there is no substitute for the ‘human touch’. And the best advisers know that the real value they offer their clients is more than the sum of the services they deliver. So, if an adviser feels genuinely threatened by AI, maybe they should take a good look at their proposition and ask themselves whether there is more they could do to raise their game.”

‘AI does not meet all client needs’

Louis Williams, head of psychology & behavioural insights at Dynamic Planner, said that although AI is no substitute for advisers’ ability to empathise, it has its advantages.

“AI is not a threat to the adviser-client relationship,” Williams said. “It provides a different offering but one that currently does not meet all client needs, such as providing reassurance and guidance during difficult times. AI is not emotionally intelligent enough to empathise with clients and understand their complex emotions.

“Despite this, advice firms should consider how AI is being used by their competitors: use of AI may become a threat as firms begin to adopt a collaborative approach, using AI to increase productivity and efficiency.

“AI can be used to reduce costs and increase productivity and provide assistance with writing reports; managing client data; generating behavioural and data insights; increasing engagement; tailoring content and communications; and increasing clients’ financial literacy and wellbeing through educational resources. AI may also provide opportunities for firms to support those clients with less wealth, who require less complex services.”

Williams also highlighted some disadvantages of AI, which could become problematic in the advice sector.

He added: “While we should embrace AI and use technology within our industry, we should not become solely dependent on AI. The adviser-client relationship is irreplaceable and AI algorithms can be heavily biased, using stereotypes to make inferences and provide solutions. When adopting AI, it is important to ensure that scientific approaches continue to be used, considering individual needs and objectives to create suitable recommendations.”

While he acknowledged the benefits that AI can bring, Just FA business development manager John Driscoll also pointed to the importance of client preferences.

Driscoll said: “AI can have a place in the financial planning space in terms of creating efficiencies and more sophisticated financial plans. However, it it still ultimately the personal relationship, reassurance and financial coaching from a human financial planner that clients seek and value the most. We don’t believe that this will change.

“There is a great deal of general wariness regarding AI and we believe that this will be particularly relevant when clients are trusting someone with something as important as their financial planning.”

‘Embrace it now, in the right way’

Setul Mehta, head of adviser services & business development at The Openwork Partnership, believes how advisers use AI is key.

He said: “AI in the advice space is still at its infancy compared to what it will be like in a decade, therefore, we have to be careful and curious about AI in the advice market but certainly not fearful. For the advice space, AI will be at its most powerful when integrated with adviser processes, not as a replacement for advisers, which is why embracing it now in the right way is important.

“To give an example of how it could work in protection, if a client has underlying medical disclosures, then AI can start to make stronger calls on which cases to put on risk without the need for substantial levels of underwriting, which then reduces GP/insurer workloads.

“Advisers can also use AI as part of ongoing wealth servicing. It ‘knows’ when it’s a client’s birthday and can facilitate sending a text or birthday card. AI also knows how many times a client is looking at their platform accounts and can determine if a client is worried and trigger intervention.

“In the mortgage space, imagine AI being able to tell you when it might be right for a client to pay an early repayment charge and take up a new deal rather than just wait for the end of a standard-deal term, which is generally what happens now.

“There are lots of possibilities for AI to support and facilitate greater client support and engagement, but understanding EQ and behaviour is in its initial stages. Also, AI doesn’t have strong levels of governance built in around its uses within the advice space – this is something to watch out for. AI is here and will not be disappearing. It is important to harness it for what it is now, but to be realistic about its uses.”

‘It’s essential not to blindly trust it’

Ernst Knacke, head of research at Shard Capital, warned about the pitfalls of AI.

He said: “The rapid development of AI has brought a surge of excitement, uncertainty and questions across various industries, especially investment management and financial advice. The emergence of large language models like ChatGPT introduces potential disruptions to traditional knowledge-based work and business models, presenting both risks and opportunities within the financial-advice sector.

“While AI arguably holds promise to improve client outcomes, risk management and asset allocation, it is crucial that investment managers and advisers do not rely solely on AI-generated advice. Despite the promise, these models often produce incorrect information or misinformation.

“AI models are influenced by the dataset they were trained on, just like children are influenced by the traditions of their parents. At this stage, it’s essential for advisers and investors not to blindly trust it. Acknowledging the limitations of AI is perhaps the first step in harnessing its potential while avoiding potential pitfalls.

“That said, we believe there are two potential mistakes that advisers can make in the current landscape: relying solely on AI for providing advice to clients, without exercising human judgment and doing their own research and analysis; and assuming that AI technology will not disrupt their business and ignoring its potential impact on their practices.

“Eventually, AI will be used as a tool in the investment framework, which should lead to better client outcomes and more effective risk management. It might even give advice without any human intervention. But we are a long way away from that.

“In the coming years, most advisers should look into where AI can be used – for instance, where it might replace mundane tasks, or improve efficiency in their overall investment proposition. As AI continues to evolve, this internal review should perhaps be an evolving process in itself.

“What is clear is that the time to start and conduct thorough research and gather evidence of how to incorporate AI, is today.

“We believe the benefits will be twofold − better client outcomes and increased profitability. “The increased profitability should result in further fee compression. It’s a win-win for clients in the long term. However, achieving these improvements will take time and might even reduce adviser profitability in the short term. But what is undeniable, is that the advice industry is entering an era of change.

“While AI presents opportunities for improvement and growth, it is essential to approach it with conviction in its essence, but scepticism in its quality. By adopting a first-principles and R&D-based approach, financial advisers and investors can effectively navigate the evolving landscape and use AI to their advantage in the near future, while maintaining a focus on delivering value and making well-informed decisions today.”

‘Huge potential’

Change due to the emergence of AI is inevitable, observed Jonathan Hawkins, principal consultant at Bravura.

Hawkins said: “AI has huge potential to improve the UK’s advice market. As the tech continues to evolve, advisers will start to see more AI-based applications and microservices creeping into their day-to-day interactions with clients to help create efficiencies and automate standardised processes.

“We’re not quite there yet, but eventually AI will fundamentally alter the way advisers work and interact with clients. This shouldn’t, however, be viewed as a threat. In most cases, AI will enable advisers to spend more time focusing on their clients’ ambitions and growing their business, rather than basic admin tasks, which are only increasing in tandem with the regulatory burden.

“One of the great things about AI is its ability to offer scale – and this could be a game changer when things like digital advice start to lift off in the UK. With the current advice gap only increasing in recent years, AI could be a great way to help advisers serve more clients and democratise the advice offering. Take the recent launch of the Money Saving Expert app, which uses a ChatGPT plug-in to answer finance-related enquiries. This is a great innovation, and we can expect to see more of these types of services emerge in the future.

“One area the advice industry will have to pay particular attention to is ensuring a consistent level of standards across the industry – and that will only come with training and refining the tech. No one is currently assessing the output of bots like ChatGPT too closely and this could pose real issues if not dealt with soon. Where is the bot getting its information from and is it providing the correct output based on the type of enquiry? What privacy concerns do we have with information being fed into the AI model? These are key questions yet to be answered by the tech providers, industry and regulators.

“Ultimately, advisers shouldn’t fear the impact of AI but instead welcome it with open arms as it will help achieve greater scale, enable them to focus on more meaningful work and support them in serving more customers.”

‘Essential to maintain a balance’

Dean Kemble, chief commercial officer, GSB Capital says increased efficiency, personalisation and cost savings are some of the key advantages of using AI, but he says there are concerns to be addressed too.

He said: “When considering the financial-advice market, we must remember that technology has been revolutionary over the past two decades. AI has existed for some time but is gaining media attention due to its continued evolution.

“By analysing financial data rapidly and precisely, AI can detect trends, patterns and investment opportunities that may go unnoticed by human advisers. This increased efficiency can accelerate decision-making and provide better-informed choices.

“Financial advice can now be personalised, using algorithms considering individual preferences, risk tolerance and financial goals. This leads to more customised and relevant recommendations for clients. With the help of AI-powered financial tools, customers can receive assistance and support around the clock, improving accessibility and customer service. This reduces the influence of human biases on financial advice, ensuring more objective and data-driven recommendations.

“By taking various factors and historical data into account, AI algorithms can accurately evaluate risks. This can help in creating diverse portfolios and minimising potential risks. By automating some financial advisory tasks using these tools, financial institutions and clients can save costs.

“That said, it is critically important to acknowledge the crucial role that human financial advisers play in the advice process. A notable advantage they have is their capacity to empathise with clients and comprehend their emotional requirements and worries. It remains to be seen whether this emotional intelligence is something that AI will be able to possess.

“Financial advice using AI algorithms can also be difficult to comprehend, causing concerns about transparency and accountability. Since it relies on data, there may be concerns about data privacy and security, especially if sensitive financial information is involved. When considering data, it also relies on the quality of the data.

“Depending solely on AI for financial advice may lead to a decrease in understanding of financial concepts among clients, which could create a reliance on algorithms without a solid foundation in financial literacy. Its use in financial advice will be subject to regulatory scrutiny and may present challenges in complying with existing financial regulations. These systems are not exempt from errors or biases, and unforeseen risks may emerge, affecting financial advice and investment outcomes.

“Using AI in the financial-advice sector can significantly enhance operational efficiency, enable tailored recommendations and aid in risk assessment. However, it is essential to maintain a balance between the use of its capabilities and the incorporation of the human touch to address emotional aspects and establish trust with clients.

“Robust data privacy and security measures must also be implemented to protect clients’ sensitive financial data. As AI technology advances, financial institutions and advisers must remain knowledgeable about its capabilities and limitations, adhere to applicable regulations and uphold ethical standards in their practices.”

‘A complementary tool rather than a replacement for human expertise’

Zach Womack, chief technology officer at SEI, also took the view that it’s important to strike a balance between AI and adviser capabilities.

He added: “While some may view AI as a threat to the traditional role of financial advisers, it’s essential to recognise that AI can bring significant benefits to their businesses and enhance the quality of financial advice provided to clients if advisers incorporate technology thoughtfully and with the appropriate guardrails.

“Financial advisers should be open to incorporating new technologies into their businesses, especially technologies like AI that can greatly improve their efficiency and productivity. AI-powered tools can analyse vast amounts of data in real time, enabling advisers to make well-informed decisions more quickly. This empowers advisers to focus on higher-level tasks, such as understanding clients’ unique needs, providing personalised advice, and building stronger relationships with their clients.

“Using AI and machine learning does provide potential challenges and pitfalls. AI should be viewed as a complementary tool rather than a complete replacement for human expertise. The human touch in financial advice is crucial for understanding the personalised aspects of clients’ financial goals.

“AI should not be seen as a threat to financial advisers but rather as a valuable tool that can augment their capabilities and provide enhanced services to clients. By embracing AI in their businesses, financial advisers can improve efficiency, accuracy and personalisation of their advice. The positives of AI in advice lie in its ability to process vast amounts of data, identify patterns and improve operational efficiency. Striking the right balance between human expertise and AI-powered insights is key to leveraging AI’s full potential for the benefit of both advisers and their clients.”

‘Here to stay’

Ian Mackenzie, chief operations and technology officer at St. James’s Place, said: “AI is here to stay, so let’s embrace it as an opportunity rather than see it as a challenge. In a face-to-face industry such as financial advice, the adoption of AI and data can be a force of good that can make firms easier to do business with.

“Great financial advice is all about getting to know the client so, for businesses like our own, it’s about putting technology behind, not in front of, the adviser. Used in the right way, AI can help power client relationships, improve experiences and provide better outcomes, alongside optimising administration processes for ease and efficiency. That can only be a good thing.

“We are already seeing first-hand how innovative technologies can evolve our business and we are only just scratching the surface in terms of what this technology can do in redefining the future of financial advice.”

To put it in perspective, the complexity of global financial markets has created a labyrinth, which is becoming increasingly difficult to navigate without its own Ariadne’s thread.

As investment professionals, we understand that effective navigation in the realm of investments begins with a clear understanding of our current position. By knowing where we stand, we can accurately assess our options and chart a course toward our desired destination. In this context, risk serves as the compass that guides us. It helps us evaluate the landscape of portfolio construction and instrument selection, enabling us to make informed decisions. However, risk itself is not a constant; it is a dynamic and ever-changing entity. Its manifestations vary across different asset classes, each with its own distinct characteristics.

To successfully construct portfolios, we need to delve into the foundational building blocks of risk. By comprehending the nuances of these elements and their individual dynamics, we gain the necessary insights to navigate the investment landscape effectively. This understanding empowers us to identify potential rewards and anticipate pitfalls over the investment horizon.

By acknowledging the dynamic nature of risk and deepening our knowledge of its components, we can equip ourselves with the tools to make informed investment decisions. This awareness enables us to adapt our strategies, construct portfolios that align with our clients’ objectives, and navigate the ever-evolving world of investments with confidence and foresight – in effect, providing us with Ariadne’s ball of thread.

To highlight the case in point, we will look at an example from the world of fixed income. Fixed Income instruments can be categorised by issuers as well as their credit rating, which is an independent assessment of the creditworthiness of the issuer.

To simplify, we have classified the issuers as government and corporate, and the credit rating as investment grade and high yield. In general, government bonds are the base relative to which the corporate bonds, both investment grade and high yield, are viewed, with the risk increasing as one goes from government bonds to investment grade to high yield.

Figure 1 shows the scatter plot of both the investment grade and high yield categories vis-à-vis those on the government bonds. In simple terms, the yield on the bonds represents the rate of return from these instruments if held to maturity from now.

Two facts are immediately apparent from the picture – firstly, yields on the riskier high yield bonds is higher than investment grade, signifying the extra compensation one receives for taking on more risk. Secondly, as the yield on the government bonds increase, so do the yields on the investment grade and high yield corporate bonds, but the rate of increase is not uniform, nor is it symmetric. The rate of increase in high yield is higher than the investment grade, given moves in the government yields. This is evidenced by the fact that while investment grade yields vary from 2% to 4%, high yield moves from 4% to 10%, as government bond yields increase.

The impact of these moves can be seen from the chart on cumulative losses on the different fixed income asset classes. As the chart clearly shows, while losses in investment grade corporate bonds increase almost linearly with losses in government bonds, whereas in the case of high yield the losses exacerbate past a certain level.

In addition, in the range till -7.5% of losses in the UK government, the losses arising from high yield are unrelated, given the fact high yield as an asset class is positive correlated to equities rather than fixed income. But as the losses on government bonds increases, accelerating the uncertainty in the macro-economic conditions, high yield and equities face incremental and sizeable losses.

While market risk can be quantified with the help of models and assumptions, measuring and quantifying the liquidity risk in portfolios is challenging. In the simplest terms, liquidity risk refers to the risk of not being able to convert an asset to cash without incurring losses (technically known as haircuts). Market participants and portfolio managers often rely on qualitative assessments, expert judgment, and experience to manage and mitigate liquidity risk. They may also utilise various liquidity risk indicators and market-based measures such as bid-ask spreads, trading volumes, and transaction costs to gauge the liquidity of their portfolios.

Figure 3 shows the trading cost of investment grade and high yield bonds in terms of force selling these instruments. As can be seen from the graph, as prices drop, the trading cost on the high yield investments rise significantly, in comparison to investment grade, thereby rendering these holdings increasingly difficult to liquidate without a significant loss. This creates an added risk to solutions holding these kinds of instruments.

To conclude, knowing the holdings of a portfolio along with the characteristics of these holdings help us put risk in perspective. It demands a keen understanding and a calculated approach.

As we’ve explored the multifaceted nature of risk, from market risk to liquidity challenges, one thing becomes clear: while risk is a challenge to be reckoned with, a keep appreciation of its intricacies help us understand the investment landscape, and provide us with the thread to navigate the labyrinth, identify opportunities while mitigating its risks.

This article was written for International Adviser by Abhi Chatterjee, chief investment strategist at Dynamic Planner.

The report also found that the neglecting advice and wealth market has led to some differences in personal finance confidence, as 39% of women in the UK report that they know how to save for retirement, compared to 57% of men.

In a separate research paper from Hargreaves Lansdown, it further highlighted the problem that female clients are falling behind in the wealth industry, with just 19% of women aged 35-64-year-old age group investing in the markets.

Emma Wall, head of investment analysis and research at Hargreaves Lansdown warned that this risks “creating a permanent gap in women’s financial health and wealth”.

Lack of trust

One of the reasons for women not investing is the lack of trust they have in the fact they are receiving good advice.

Forrester data showed only 31% of women are confident they are receiving good financial advice, while the majority rely on their own research and trusted sources such as family and friends.

In order to attract more women customers, wealth and advice firms need to have a better understanding of what women want and need when it comes to investing their money.

Debbie Dry, head of business development at JustFa, said: “According to sources, women are an underserved and untapped segment in the wealth management industry, they have different investment goals, risk appetites, communication styles and financial literacy levels than men.

“Women also face different challenges and opportunities in their financial journeys such as the gender pay gap, career breaks and inheritance.”

Yasmina Siadatan, sales and marketing director at Dynamic Planner highlighted that while financial planning firms are beginning to evolve and reflect the needs and wants of women the pace can be too slow.

To build trust with female clients, wealth and advice firms need to take time to fully understand the circumstances and needs of women and how they may differ to men.

Siadatan said: “As with any client, the task is to meet women investors where they are, really understand their circumstances and needs and when recommending products, communicate effectively about how those products can help.”

Inclusivity

While it is important for firms to keep in mind the challenges and opportunities that women are faced with when it comes to offering them financial advice, Siadatan believes that instead of trying to divide the advice given to men and women, a more diverse and inclusive environment needs to be created that both men and women can benefit from.

She added: “Rather than creating silos that risk reinforcing gender divides, a more fruitful path is to focus on building diverse and inclusive teams and a workplace culture that fosters idea sharing. By harnessing a broader range of perspectives, firms can ensure they’re well placed to serve the broadest range of clients.”

Similarly, Dry believes that financial products are and should be gender neutral.

JustFa’s Dry said: “Although it might be useful to have specific marketing aimed at female investors to include them in something that has historically and predominantly been a male domain,  financial products should target specific goals and outcomes regardless of a gender.”

Accessibility

Forrester also reported that branch locations and face-to-face interactions hold less value for women who prefer using digital channels when investing their money.

This is because it offers convenience, unbiased information and the ability to engage on their own terms.

Therefore, wealth and advice firms should use online platforms to interact with women clients and provide them with the information they need to make the right investment decisions for them.

Siadatan said: “Firms can make use of technology to enable effective client segmentation, supporting marketing and communications that demonstrate understanding and speak more directly to client needs.”