The SEC is watching how wealth managers talk about generative AI.
It is still early innings for regulation of AI tools in the United States, with most legislative activity taking place on the state level. But the SEC recently fired a warning shot at the wealth management industry with a recent settlement with RIAs over “AI-washing” in claims made in their marketing.
If that term seems familiar, it is for good reason. Much like the phenomenon of “greenwashing” in sustainable investing, “AI-washing” is the practice of falsely embellishing their use of AI technology. Advisors that use these tools rightly see them as a way to potentially differentiate themselves from competitors in their marketing. But the SEC appears to have little patience for firms it believes are stretching the truth.
While SEC Chair Gary Gensler emphasized the transformative potential of AI, he cautioned against false claims about AI usage in the finance industry, noting advisors and broker-dealers “should say what they’re doing, and do what they’re saying.” Advisors should not “mislead the public by saying they are using an AI model when they’re not, nor say that they’re using an AI model in a particular way, but not do so.”
As RIAs look to market their AI capabilities to clients, here are actionable strategies to ensure their AI claims are both credible and valuable.
clearly define what you’re doing with ai
Transparency about your firm’s use of AI begins with a clear definition of what AI means. Be specific about the AI technologies you employ, such as machine learning, natural language processing, or predictive analytics, and explain how these technologies drive value for your clients. This clarity helps set realistic expectations and demonstrates your expertise.
The key is “realistic expectations.” According to the SEC, one of the RIAs in the AI-washing settlement made the claim that their AI technology could “predict which companies and trends are about to make it big and invest in them before everyone else.” On closer examination, the SEC said the firm did not have tools with these capabilities.
Generative AI can do a lot of things, but these claims sound a little closer to clairvoyance and promises of “making it big” than the way most modern RIAs communicate their services to their clients.
Clients are interested in tangible results. Highlight specific instances where AI has made a difference in your services, whether through enhanced portfolio management, improved risk assessment, or more personalized client interaction. Use case studies or success stories to illustrate AI’s impact, making it relatable and understandable to your audience.
Excitement over the potential of AI should not eclipse your value proposition to your clients as a wealth manager. Like any other aspect of your marketing, your AI narrative should ground itself firmly in your client experience.
create a conversation
AI technology is a moving target, and so too are its applications in wealth management. What seemed mind-blowing in 2023 might be pedestrian and commoditized by the summer of 2024. Silicon Valley giants, scrappy tech startups, and advisor tech stalwarts are constantly developing new tools, new use cases, and streamlined, enterprise-level generative AI offerings.
Keep your clients and stakeholders informed about your firm’s ongoing developments and innovations in AI. Regular updates, whether through newsletters, blog posts, or client meetings, can help demystify AI and foster trust through transparency.
This proactive approach should extend to your ethical standards and compliance obligations, as well. Ethics and compliance are at the heart of trust in wealth management. Be proactive in addressing the ethical use of AI, including data privacy, bias mitigation, and transparency in AI-driven decisions. Demonstrating a commitment to ethical AI use not only positions your firm as a responsible leader, but also aligns with increasing regulatory expectations around technology and data.
GROW AI LITERACY IN YOUR FIRM
An AI-savvy team can significantly enhance the authenticity of your AI claims. Invest in training and development to build AI literacy among your staff, enabling them to understand, explain, and effectively use AI technologies. This internal knowledge base not only supports better service delivery but also empowers your team to communicate confidently about AI’s role and benefits.
Keep in mind, this is likely to be an ongoing process. Our agency has trained continuously in the use of AI tools for more than a year. In that span of time, we have had to throw out and rewrite our best practices to keep up with changes in technology and the quirks of the specific tools we use.
But the investment of time has given us a great deal of insight into the intersection of independent financial advice and generative AI technology. We believe the SEC’s settlement should not dissuade RIAs from incorporating AI into their brand story. But approaching AI with integrity, in partnership with compliance professionals, will help firms build lasting trust with clients and position themselves as forthright and responsible AI leaders.