Let’s delve into how the continuous improvement of generative AI will reshape financial services well into the 2030s and beyond. In the long run, AI’s transformative power is influenced by two crucial factors: the shifting demographics and their impact on consumer preferences, as well as the rate at which AI technology advances.
Demographic changes and the imminent wealth transfer will drive the adoption of AI in financial services. Presently, Baby Boomers, who generally value in-person interactions and are less tech-savvy, hold a significant portion of the world’s wealth.
However, this scenario is expected to change over time. In the United States, for instance, $84 trillion of wealth is projected to be transferred from older Americans to millennials and Gen X heirs by 2045, with $16 trillion transferred by 2033.
While it’s hard to envision retired or soon-to-retire Baby Boomers abruptly abandoning their financial advisors and insurance agents in favour of AI-driven services, younger generations are far more adept with technology.
By the 2030s, tech-savvy millennials will be in their prime earning years, aged between 40 and 50. Although it’s difficult to predict the precise proportion of Gen X and Millennial consumers willing to embrace AI-driven services in the future, even if just a third of them adopt it, it would dramatically transform the financial services landscape.
This demographic shift will coincide with a transformation in the way financial services websites and mobile apps (or even headsets!) operate.
Picture a future where customers simply describe their needs or queries, and an AI assistant promptly responds, 24/7, 365 days a year, within their bank or brokerage accounts.
The average consumer will only interact with human experts for specific and uncommon financial circumstances, such as managing a substantial inheritance or utilizing a 529 plan to cover college expenses.
AI will offer services to the average consumer at a much lower cost compared to human experts.
The convergence of demographic changes and advancing AI technology will reduce the need for many traditional financial services jobs.
Wealthy individuals with more complex tax and estate planning requirements may still retain human, financial experts and rely less on AI, but they represent only a small segment of the market.
According to venture capitalist Nikita Arora from Dig Ventures, the long-term demographic shift and improving AI technology will initiate a new “race to zero” cycle, resulting in reduced fees. This downward pressure on fees will likely lead to further consolidation among established financial behemoths. We may also witness the emergence of firms currently considered “challenger banks” as major players driven by superior AI technology.
Regardless of which firms ultimately emerge as winners, it is inevitable that AI will replace many jobs and tasks currently performed by humans.
Unsurprisingly, the speed at which AI will improve and the appearance of generative AIs in the 2030s are topics of intense debate.
In March, tech luminaries like Elon Musk attracted attention by publishing an open letter calling for a pause in AI development due to concerns about the rapid advancement of AI technology.
However, some have criticized this letter and similar alarmist headlines. It is possible that generative AI technology will encounter a metaphorical “wall” at some point, resulting in slower progress.
Let’s recall the predictions made in the 2010s about self-driving cars, which rely on machine learning. Many believed that by 2020, self-driving cars would dominate the roads.
Elon Musk himself predicted in 2015 that Tesla cars would be fully autonomous by 2018. While self-driving technology has indeed made significant strides, it still cannot handle unusual and complex situations with complete reliability.
Self-driving cars will undoubtedly become a reality someday, but many early predictions about self-driving AI technology turned out to be overly optimistic and ultimately inaccurate.
However, even if progress in generative AI is slower than expected, the day will come when AIs are advanced and reliable enough to take the lead in providing financial services to the average customer.
It’s not a question of “if” but rather “when.” This inevitability poses a long-term challenge for many financial services firms, necessitating an honest evaluation of their workforce structure.
The workforce of the future in the financial services industry will be smaller and more specialized. Currently, major financial services firms typically follow a business model that involves training a large number of client-facing staff to serve as a combination of salespeople and individuals with a solid understanding of finance.
This setup enables them to guide customers through a relatively standardized experience based on corporate guidelines.
However, in order to remain competitive with AI-driven services in the future, firms must adapt their business models.
The industry will need to transition to a smaller workforce where each client-facing professional receives extensive and costly training to develop specialized expertise that adds value.
The future workforce will focus on skill sets such as advanced tax planning and estate planning. Employees of the future will be there to assist customers with tasks that consumers are unlikely to feel comfortable handling on their own with an AI.
The rise of AI will also bring about new job opportunities. According to Jeroen de Bel, Director of digital banking consultancy Fincog, “AI will create jobs in the industry that we can’t even envision today. For example, due to AI’s inherent limitations, the future financial services industry will require employees who specialize in monitoring and refining the technology.”
The financial services industry in the 2030s will bear little resemblance to what we see today. The winners will be the firms that can navigate the challenging transition to an advanced AI-driven customer experience and develop a more focused and agile workforce.
As we peer into the horizon of the 2030s, the financial services industry stands on the cusp of a remarkable transformation.
It is tough to say for sure what the future of AI holds for financial firms. However, those firms that successfully navigate the challenges posed by AI while embracing its benefits will emerge as the winners.
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