Journal of Financial Planning: February 2024
Chris Heye, Ph.D., is founder and CEO of Whealthcare Planning (https://whealthcareplan.com) and Whealthcare Solutions.
For those of you who have been camping in the Australian outback for the last year, there is a new trend shaking up the financial planning profession, and just about everything else, called “artificial intelligence,” or AI.
You might be inclined to think that AI is just another fad, like cryptocurrency. Sooner rather than later, the hype will subside, and the promise of AI will fade.
But this time, as the saying goes, is different. AI is not going away. In fact, its influence will spread, perhaps faster than many of us can imagine. AI is likely to be the most transformative technology since at least the advent of global computer networks and the world wide web.
This view is coming from someone who has been somewhat of an AI skeptic over the years. It’s not that I haven’t appreciated the brains and efforts behind each successive AI innovation. I just felt that the hype didn’t quite match the reality. And while I am sure that I have benefitted from AI in more ways than I know, for me until recently AI had not achieved the significance of say, PCs, semiconductors, or search engine algorithms.
Why is it different now? The advances achieved in the last few years in the development of large language models (LLMs) like ChatGPT constitute a major leap forward in AI technology. These LLMs are designed to understand, interpret, and generate human-like text. While not perfect, they do a pretty good job of that. And other types of AI models, including computer vision models that interpret visual data like images and videos, generative adversarial networks (GANs) like Dall-E that can create complex images based on text prompts, and predictive analytics models that can analyze vast amounts of data and make predictions about the future, are all coming our way.
One measuring stick I like to use when evaluating a new technology is its potential to improve the physical, material, and/or spiritual welfare of a substantial number of (not just wealthy) individuals. The internet, antibiotics, and smartphones clearly meet this criterion, while cryptocurrencies, NFTs, and Segways do not. Unlike many heralded and hyped “game changers” from our past, AI really does have the potential to improve the health and material well-being of virtually everyone on the planet. (It could also destroy all life on the planet, but I prefer to save that discussion for another time.)
What does this mean for financial planners? There are plenty of people more knowledgeable than I who can explain how AI will transform the data analysis, risk assessment and detection, back-office operations, and marketing tasks performed by financial professionals. Suffice to say that in 10 years, the entire financial planning profession will look very different because of AI.
But what about financial planning clients? How will AI affect their lives, and how will those developments in turn impact the financial planning profession?
Healthcare a Clear Beneficiary of AI
One of the fields most likely to be impacted by AI is medical research and development. It is difficult to overstate the potential of AI to improve health outcomes and lengthen lifespans for billions of people around the world.
AI is already transforming pharmaceutical and biological drug discovery and development. Getting a new drug approved has been historically an incredibly time-consuming and expensive process. A study in 2020 estimated that the median cost of bringing a new drug into the market was $985 million, with the average cost being $1.3 billion (Wouters, McKee, and Luyten 2023). Other studies have suggested that these costs are even higher (Deloitte 2023).
There are several explanations for the high cost of drug development, but a major driver is the cost of conducting clinical trials. Many—actually most—clinical drug trials fail. Biopharma companies frequently invest millions, in some cases billions, of dollars but end up getting nothing in return. Reducing the costs of new drug development is a major goal for all firms involved in bringing new biopharma products to the market.
AI will significantly change how new drugs are developed. AI models can analyze vast datasets to identify drug candidates much faster than current methods. There are an estimated 20,000–25,000 protein coding genes in the human body. The exact number of proteins they can create is not known, but estimates range from 200,000 to over 1 million.
Many drugs are designed to interact with specific proteins in the body to modify or eliminate the underlying cause or symptoms of a disease. But the sheer volume of proteins in the body, and the degree to which specific proteins interact with other proteins and organs in the body, makes the determination of the efficacy of protein-targeting drugs extremely difficult. This complexity is a major cause of the failure of so many clinical trials. We just can’t easily predict how a lot of drugs will affect human bodies.
AI can help medical researchers identify potential protein targets and estimate their safety and efficacy much faster and more accurately than current mostly trial-and-error approaches. AI algorithms can also help identify new indications for existing drugs (Inside Precision Medicine 2023). In short, AI will transform drug development by lowering costs, reducing development times, and enhancing the drug safety profiles. It will be a game changer and improve health outcomes for just about everyone (Vora et al. 2023).
Importantly for those of us concerned about the impacts of cognitive decline on financial decision-making, it is very likely that AI will play a significant role in the development of cures for Alzheimer’s disease and other forms of dementia. Dementia is a complex phenomenon, and hundreds of Alzheimer’s trials have failed. A recent study however found that a “deep learning” AI approach can detect Alzheimer’s disease with 90 percent accuracy (Chase 2023). Medical researchers are already using AI to analyze large volumes of tissue samples from the brains of Alzheimer’s sufferers to help identify potential targets across over 6,000 genes (Christensen 2023).
There are many other areas of medicine that will be transformed by AI. Importantly, AI will enable healthcare to become much more personalized. Medical scientists in recent years have become acutely aware of the non-heterogeneity of many drug treatments. For example, some new immuno-oncology treatments can make one patient’s tumor disappear completely but have no effect (or worse) on a different patient. AI models will be able to analyze individual patient information, including specific genetic profiles, and identify personalized treatments. This means higher levels of drug efficacy and fewer side effects for all patients.
AI will also improve the delivery of healthcare for millions of people. AI-powered robots will help doctors perform more complex and successful surgeries. AI algorithms will help physicians diagnose diseases by assisting in the analysis of complex medical images like X-rays, MRI, and CT scans. Professional training will be enhanced by AI algorithms that can create highly realistic simulations and virtual patient environments. AI software will enable hospital office operations to become more efficient at managing patient care.
Safer Homes and Streets
AI will improve our health and quality of our lives in many other ways. One area where we are already experiencing the benefits of AI is in technologies and applications that are used in the home. We can now buy “smart” heating and cooling systems, security devices, and major appliances, and more are on the way. Most people want to stay in their home as long as possible, but for many of them, living at home is neither a safe nor affordable option later in life. Moreover, there is a growing shortage of senior living facilities, suggesting that the costs of living outside the home will increase as well. Advances in AI will make living at home safer and less costly for many older adults and their families.
Personal transportation is another area where AI will have a positive impact on health and lifestyles. While I am not quite as optimistic on the timing of availability of self-driving cars, I still believe they will be here soon enough for many of us to take advantage of them. When self-driving vehicles become safer than human-controlled cars for most day-to-day transportation, it will reduce the number of accidents involving older adults. (While most studies have shown that older adults are not necessarily worse drivers, they do show a correlation between age and the severity of injuries resulting from vehicle accidents.) Safer and more accessible transportation options will also increase opportunities for social interaction for older adults, improving quality of life and cognitive health.
These new technologies constitute only the leading edge of AI-driven product and service innovation. For example, OpenAI (the developer of ChatGPT) is planning to introduce the GPT Store, an online marketplace analogous to the Apple Store where software developers can sell applications that incorporate its AI models. This store will facilitate the widespread introduction of AI-powered software applications while creating a new ecosystem of developers and development tools. In a relatively short time, conversational style, AI-powered apps will become mainstream. These applications will be used for almost everything and will assist in improving health, healthcare, and financial decision-making.
These AI-driven innovations will increase productivity and put downward pressure on prices across a wide range of everyday products and services. For example, the productivity of software programming is expected to increase dramatically with the adoption of AI tools. ChatGPT is already a very good coder and error checker, and its programming capabilities will only increase over time. With its ability to monitor crop health, soil quality, and weather conditions as well as facilitate logistics, AI will also improve the efficiency of food production and distribution. AI is also expected to improve the quality and productivity of educational services, transportation, entertainment, and manufacturing.
Indirect Impact of AI in Financial Planning
Getting back to our original question, what consequences does the growth and proliferation of AI technologies have for financial planners?
The financial planning profession will be directly affected by AI in numerous ways, as I alluded to earlier. Over time, planners who embrace AI in their analyses of market and investment data, assessments of client risk, and provision of customer services will significantly outperform those who do not. If I were in charge of a financial planning firm, my next hire would be someone who could help us integrate AI models and technologies into our daily operations.
But AI will have massive indirect effects on the profession as well, such as:
Clients will live longer. Faster and cheaper drug discovery combined with the more efficient delivery of healthcare services will enable longer lifespans. The aging of the populations in all developed countries is already a major development shaping the financial services sector, and AI will only accelerate that trend. Life expectancy for most adults in the United States will continue to increase, and many members of the millennial and Gen Z generations are likely to live well into their 90s and beyond.
Clients will be healthier. Currently in the United States there is a large gap between lifespan, i.e., the number of years a person is expected to live, and healthspan, the number of years a person can expect to live in full health. Life expectancy in the United States for a person born today is currently 77.5 years, but they will experience only 66.1 years of good health.1 AI will not only contribute to longer healthspans, but it will also reduce the gap between healthspan and lifespan for many people.
Clients will work longer. Because of AI’s ability to increase healthspans and decelerate cognitive decline, many older adults in the United States will be healthy enough to work well beyond the conventional retirement age of 65. Not all older adults will choose to work full-time, but for both economic and psychological reasons, many of them will still want to work in some capacity. AI-driven advances in communications, transportation, and computer software will make it easier for older adults to continue to make substantial contributions at the workplace.
Client expectations will be higher. AI will usher in a new era of personalized and customized products and services. Clients will receive more personalized healthcare services, use more customizable and smart software applications, and interact more frequently with virtual assistants who seem as real as human beings. Clients will grow to expect similar personalized services from the financial professionals they work with. And because they will see AI-driven falling prices in many other areas of their daily lives, they will expect to see their planning fees decline as well.
In summary, AI will have profound implications for financial planning clients and their expectations of the quality and pricing of the services they receive from planning professionals. Clients will live longer and therefore require more effective strategies for ensuring the that they do not run out of savings. Many will want to continue working later in life and need help achieving a balance between work and leisure while still recognizing health risks. Clients will expect much more personalized services and will want to be able to interact with a human, or a very close proximity of one, at any time.
So buckle up! AI is about to infiltrate virtually every aspect of the lives of financial planning clients. Rather than fear it, financial professionals should fully embrace AI and integrate it into their practices as quickly as possible. To paraphrase the subtitle of the classic 1964 satiric film depicting technological innovations that threaten to destroy life on earth, financial planners need to stop worrying and learn to love AI.
Endnote
- See World Health Organization https://data.who.int/indicators/i/C64284D and the U.S. Centers for Disease Control www.cdc.gov/nchs/data/vsrr/vsrr031.pdf.
References
Chase, Brandon. 2023, March 3. “Model Tested on Tens of Thousands of Routine Brain Scans Spotted Disease Risk with 90% Accuracy.” The Harvard Gazette. https://news.harvard.edu/gazette/story/2023/03/using-ai-to-target-alzheimers/.
Christensen, Anna C. 2023, May 15. “To Accelerate Search for an Alzheimer’s Cure, Scientists Use Artificial Intelligence to Identify Likely Drug Targets.” The University of Arizona. https://medicine.arizona.edu/news/2023/accelerate-search-alzheimers-cure-scientists-use-artificial-intelligence-identify-likely-drug.
Deloitte. 2023, January. “Seize the Digital Momentum: Measuring the Return from Pharmaceutical Innovation 2022.” www2.deloitte.com/content/dam/Deloitte/uk/Documents/life-sciences-health-care/deloitte-uk-seize-digital-momentum-rd-roi-2022.pdf.
Inside Precision Medicine. 2023, December 18. “AI Shows Drug Repurposing Potential.” www.insideprecisionmedicine.com/topics/translational-research/ai-shows-drug-repurposing-potential/.
Vora, L. K., A. D. Gholap, K. Jetha, R. R. S. Thakur, H. K. Solanki, and V. P. Chavda. 2023, July 10. “Artificial Intelligence in Pharmaceutical Technology and Drug Delivery Design.” Pharmaceutics 15 (7): 1916.
Wouters, O. J., M. D. McKee, and J. Luyten. 2020, March. “Estimated Research and Development Investment Needed to Bring a New Medicine to Market, 2009-2018.” JAMA. 323 (9): 844–853. doi:10.1001/jama.2020.1166.