The Impact of Artificial Intelligence (AI) on the Securities Industry

Artificial Intelligence (AI) is changing the world. It is revolutionizing how we work and making an impact across industries.

The financial services industry is no exception. Automating routine tasks such as data analysis, risk management, compliance, and investment advice can transform the operations of broker-dealers and investment advisers. AI can enable consumers to make better investment decisions.  

There is opportunity for AI to transform the securities industry in many ways. This blog post explores a few areas where AI could improve existing processes and reduce operational costs, improve efficiency, provide seamless customer experiences, and keep investors better informed.  

Customer Service 

Improving customer service is arguably the lowest-hanging fruit of AI adoption in the securities industry. This opportunity is not unique to financial services firms, as many other industries have incorporated AI into customer interactions.  

Chatbots and virtual assistants are available around the clock, providing instant support, answering queries, and offering relevant information to investors, such as providing account balances, portfolio holdings, market data, and even processing trade orders (within certain thresholds).   

Implementing AI-powered solutions can significantly reduce operational costs for securities firms. Chatbots and virtual assistants can handle a large volume of customer inquiries simultaneously. Handling these high-volume, common tasks free staff members to focus on more complex tasks. 

Customer Account Opening Process 

The account opening process is often the first interaction between a customer and a securities firm. This process can be cumbersome and time-consuming, involving paperwork, manual verifications, and potential errors. To overcome these challenges, securities firms can use AI to streamline and enhance the account opening process. 

For example, AI systems can automate extracting relevant information from customer-provided documents, such as identification cards, proof of address, and financial statements. They can evaluate creditworthiness by analyzing a new client’s financial history and enabling the broker-dealer to make informed decisions about account approvals and credit limits.  

This information is required as part of the broker-dealer’s compliance responsibilities. Customer due diligence is critical in the account opening process to ensure compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations. AI can conduct checks by analyzing customer-provided documents, cross-referencing them with external databases, and flagging potential risks or red flags.  

AI-powered account opening systems can seamlessly integrate with existing backend systems, such as customer relationship management (CRM) software or document management systems. This integration enables a smooth data flow, eliminating the need for manual data entry and reducing the chances of errors. By automating data exchange between systems, securities firms can improve operational efficiency, reduce costs and provide a seamless customer experience. 

Investment Advice 

Broker-dealers and investment advisers can harness the power of artificial intelligence (AI) to provide personalized investment advice and recommendations. This technology offers the possibility for more personalized, data-driven, and efficient advisory services.  

Robo-advisors have recently gained popularity as they offer automated financial planning and investment services. These digital platforms use AI algorithms to create and manage personalized client portfolios based on their financial goals and risk tolerance. They analyze market data and execute trades automatically, optimizing portfolio performance and minimizing human error.

One of the main advantages of robo-advisors is their cost-effectiveness. They typically charge lower fees than traditional advisers, making them accessible to a broader audience. They also offer convenience and 24/7 accessibility through web or mobile platforms. 

Robo-advisors assess and manage risk by analyzing customer data and generating risk scores. This allows them to offer suitable investment options tailored to each customer's needs, improving customer satisfaction and minimizing the chances of misaligned investments. They can also provide personalized financial advice, including budgeting recommendations, investment strategies, and retirement planning. 

These platforms use asset allocation, diversification, rebalancing, and portfolio optimization strategies to achieve the desired outcomes. They offer features like automatic rebalancing and tax-loss harvesting to help clients manage their investments efficiently. 

While robo-advisors are scalable and cater to individual and institutional investors, they may not address complex financial planning needs. They may also have limited customization options and lack human interaction, which some investors may value. 

AI's strong appeal is its ability to learn. Within portfolio management, AI systems continuously learn and adapt based on customer input. These systems can refine their recommendations, incorporating new data and market insights. AI's ability to learn and improve could ensure that investment advice remains relevant and up-to-date, keeping investors informed about the latest opportunities and strategies. 

Artificial intelligence (AI) will likely revolutionize the financial services industry, particularly the securities industry. Through the adoption of AI-powered technologies, broker-dealers and investment advisers can transform customer service, streamline the customer account opening process, and reshape investment advice. AI enables chatbots and virtual assistants to provide instant support and handle high-volume customer inquiries, improving efficiency and reducing operational costs.  

The ability of AI systems to continuously learn and adapt ensures that investment advice remain relevant and up-to-date. As AI continues to evolve, its integration into financial services will enhance the quality of service, improve customer experiences, and optimize investment strategies, ultimately benefiting both financial institutions and investors. 

About the Author 

Anthony Colonna
Director and Chief Editor of Securities, ExamFX

Anthony Colonna has served as the Director and Chief Editor of Securities at ExamFX for 8 years. He leads the Securities Editorial Team in maintaining, developing, and creating course content and course-related products. 

Before joining the licensing exam prep world, Anthony worked in the securities industry for 16 years in various broker-dealer firms. He acquired 12 registrations during his tenure and held roles in sales, research, trading, and supervisory risk.

Anthony worked for 7 years as the Director of Testing Standards in the Regulation Division of the New York Stock Exchange Regulation, now known as FINRA. In this role, he was responsible for managing multiple licensing examination programs, including the Series 7, for the regulatory authority.

Anthony holds an MBA with a major in Finance from Pace University and a BS with a major in Economics from New York University.