Artificial intelligence has Wall Street employees looking over their shoulders.

The world’s most talked-about technology is set to take over banking jobs traditionally handled by human employees, according to a report by Bloomberg Intelligence. Executives at top financial firms, like Citigroup, JPMorgan Chase and Goldman Sachs, expect to let go of about 3% of their global workforce over the next five years, leading to the loss of 200,000 jobs. About a quarter of the respondents surveyed by Bloomberg said the layoffs could end up accounting for some 10% of total staff. It’s a shift that could reshape banking operations and significantly increase revenues for financial services firms.

“The AI revolution in wealth management isn’t just coming — it’s already here,” said Will Trout, Datos Insights’ director of securities and investments. “The traditional army of junior advisors and support staff who handle routine portfolio management and client servicing could be decimated within five years.”

That AIn’t Good

AI can now create sophisticated investment recommendations and risk analyses that are the envy of even the best human advisors. But the AI revolution is likely to take on the lowest-hanging fruit. That means handling repetitive tasks in back- and mid-office departments like trade processing, compliance monitoring, and basic customer services.

“The automation of routine, repetitive tasks is inevitable,” said Ritik Malhotra, CEO at wealth manager Savvy Wealth. Still, experts don’t agree on the impact the tech will ultimately have on the relationship-based industry. “While a significant portion of banking jobs may be automated, wealth management thrives on human connection — which AI cannot replicate,” he said.

Sure, employees might find it harder to land work, but the companies that used to employ them are expected to ride the AI revolution all the way to the bank. The Bloomberg research found:

• The AI transformation could add as much as $180 billion to firms’ bottom lines worldwide. Profits are expected to surge 12% to 17% as AI increases efficiency.
• Eight in 10 respondents said generative AI could bump revenues up at least 5% in the next three to five years, according to the data.

Do You Even AI? So, how can employees stop the technology from eating their lunch? Advisors that equip themselves with the latest AI tools can provide more targeted advice based on real-time data, and that could help lead clients to better financial outcomes, Malhotra said. While some entry-level roles are seeing significant change, the technology will eventually prove to be “additive” to the industry as advisors focus on forging better relationships with clients.

From Trout’s perspective, the future may belong to a new breed of wealth managers that combine relationship-building skill sets with the strategic thinking of AI. Sure machines can math anyone out of a job, but can they help navigate more complex financial situations like caring for loved ones or estate planning? “The question isn’t whether AI will transform wealth management, but whether advisors are prepared to evolve,” he said.

The 60-40 rule isn’t dead, just inverted.

The classic portfolio split, which favors the lion’s share of investments going to stocks with the remaining 40% in bonds, has been a bedrock of advisor portfolios for decades. After a two-year stock market run, however, the bulls may be getting gassed. In a recent outlook report, Vanguard suggested advisors and investors allocate just 38% of their portfolios to stocks and put the remaining 62% toward fixed income. The world’s second-largest asset manager has been edging toward defensive strategies for the past few years, suggesting a 41/59 ratio last year after calling for a 50/50 split in 2023.

“While the 40/60 allocation is not a one-size-fits-all solution, it could be appropriate for investors who are willing to take on some active risk in pursuit of better risk-adjusted returns,” Vanguard senior investment strategist Todd Schlanger told The Daily Upside.

Outlook Not So Good

Vanguard is recommending advisors put their, well, guards up, after the US economy’s post-pandemic tear led to soaring stock prices. “We expect high valuations and stretched margins to be meaningful headwinds to US equity returns over the long term,” the Vanguard report said. 

Another motivator is higher-for-longer interest rates. The Federal Reserve started cutting rates in September, with two more reductions in November and December. Current Fed rates sit between 4.25% and 4.50%, and the central bank remains cautious on any further slashing. That monetary policy, which can be seen in economies around the world, sets the foundation for solid cash and fixed income returns over the next decade, Vanguard said. 

Agree to Disagree: While groups like PIMCO have also suggested the 40/60 flip, some asset managers are still hedging their bets on stocks. 

“We currently have a modest tilt to equities relative to fixed income,” said Charles Shriver, a T. Rowe Price portfolio manager. The Baltimore based firm adjusts its asset allocations based on a six-to-18-month outlook, he said, whereas the Vanguard report is a long-term, 10-year forecast.

Financial planning firm Facet also disagreed with the Vanguard report. “This is an extremely aggressive posture, one that probably only works if there’s an imminent bear market,” Facet CIO Tom Graff told The Daily Upside. “Calling tops and bottoms of the market is so extremely difficult, and if you get the timing just a little wrong, it is a loser trade.”

Well, that campaign really went up in flames. 

Financial regulations surrounding advertisements are becoming hot topics both here and abroad, after a UK watchdog banned posters from a Sharia-compliant robo-advisor that featured burning US and European Union banknotes. The ads created by New York City-based Wahed Invest appeared in London tube stations, and led to 75 public complaints, according to the Advertising Standards Authority. The agency argued that currency can be considered culturally significant and a symbol of national identity.  

It’s the latest sign that regulators around the globe are stepping up enforcement of advertisements and cracking down on non-compliant marketing in the financial sector.

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