As a follow up to our exploration of how next generation AIs such as ChatGPT will change the financial services industry in the next five years, in Part Two we will examine how ever-improving generative AI will change financial services into the 2030s and beyond. The impact AI will have on the financial services industry in the long term is driven by two factors – the influence demographic shifts will have on consumer preferences and the rate the technology improves.
Demographics and the looming wealth transfer will accelerate AI adoption in financial services
As it stands today, Baby Boomers – who are generally less tech savvy and place a greater value on in-person interaction – control much of the world’s wealth. This situation will change in the long-term. For example, in America, $84 trillion of wealth is expected to be passed down from older Americans to millennial and Gen X heirs through 2045, with $16 trillion transferred by 2033.
While it is hard to imagine retired or near-retired Baby Boomers ditching their financial advisors and insurance agents in droves in favor of AI-driven services, younger generations are more tech savvy. By the 2030s, tech-savvy millennials will be 40-50 years old and entering their prime earning years. While it is hard to predict the exact ratio of Gen X and Millennial consumers who would be willing to use an AI-driven service in the future, if even a third of these consumers proved open to it, it would drastically change the financial services industry.
This demographic shift will coincide with a transition in the way financial services websites and mobile apps (or headsets!) operate. When consumers of the future log into their bank or brokerage account, they will simply describe what they are seeking to do or to understand and the AI assistant will answer immediately, 24/7, 365 days a year. The average consumer will only interact with human experts in special and uncommon financial circumstances, such as navigating a significant inheritance or cashing out a 529 plan to pay for college.
AI will be able to serve the average consumer for a much lower cost than a human expert. The demographic transition combined with improving AI technology will reduce the need for many traditional financial services jobs. While wealthy individuals with more complicated tax and estate planning needs will likely still retain human financial experts and rely less on AI, this represents only the very top end of the market.
According to Nikita Arora, venture capitalist at Dig Ventures, “the long-term demographic transition and improving AI technology will create a new “race to zero” cycle that reduces fees. This downward pressure on fees probably leads to further consolidation among the established financial behemoths. We will probably also see some firms that are today considered “challenger banks” emerge as major players based on superior AI technology. But regardless of which firms emerge victorious, in the long term AI will replace many of the jobs and tasks currently performed by humans.”
The exact rate of technology improvement is uncertain, but it is a matter of “when,” not “if”
Unsurprisingly, the exact speed at which AI will improve and what generative AIs will look like in the 2030s is a matter of intense debate. In March, tech luminaries such as Elon Musk made headlines by publishing an open letter calling for a pause in AI development given their concerns about the speed at which AI technology will improve. That said, some have been critical of this letter and similar alarmist headlines. It is possible that generative AI technology will hit a metaphorical “wall” at some point and start to progress at a slower rate.
Recall that in the 2010s, many were predicting that self-driving cars (which also rely on machine learning) would be taking over the roads by 2020. For example, the same Elon Musk warning about the speed of generative AI improvement predicted in 2015 that Tesla cars would be driving themselves by 2018. While self-driving technology has made huge improvements, the technology still can’t be trusted with unusual and complex situations. Self-driving cars will rule the road someday, but many predictions about self-driving AI technology at the start of the hype cycle were ultimately incorrect and overly optimistic.
Yet even if progress on generative AI is slower than expected, the day when AIs are advanced and reliable enough to lead the experience with the average financial services customer is coming. It is a matter of “when,” not “if.” For many financial services firms, the long-term challenge posed by AI means that firms must be brutally honest with themselves about how they have structured their workforce.
The financial services industry’s workforce of the future will be smaller and more specialized
As of 2023, the typical business model of a major financial services firm relies on training a large number of client-facing staff to be a combination of a salesperson and someone with a high-level knowledge of finance sufficient to guide customers through the firm’s relatively cookie-cutter experience based on corporate guardrails. In order to be competitive with AI-driven services in the future, however, firms will need to change their business models. The industry will need to transition to a smaller workforce where each client-facing professional receives extensive and expensive training to develop value-add expertise. The future workforce will be focused on skill sets such as advanced tax planning and estate planning. Employees of the future will be there to guide customers through tasks that consumers are unlikely to be comfortable performing on their own with an AI.
The rise of AI will also create new jobs. According to Jeroen de Bel, Director of digital banking consultancy Fincog, “AI will also create new jobs in the industry that cannot be imagined today. For example, given AI’s “black box” limitations, the financial services industry of the future will need employees who specialize in monitoring and refining the technology.”
The financial services industry in the 2030s will look very different than it does today. The winners will be the firms that can manage the difficult transition to an advanced AI-driven customer experience and a more focused and nimble workforce.
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