AI and Finance Series: How will AI benefit the Finance Profession?

Part V

 Artificial Intelligence (AI) has brought about a revolutionary shift in numerous sectors, including finance. In an era characterized by big data and intricate market dynamics, AI stands out as a powerful tool in the financial landscape. Its capacity to automate tasks, predict outcomes, and aid in decision-making has markedly enhanced efficiency and yielded superior results.

Advancements in AI have been substantial in recent years, driven by enhanced computational capabilities, the accessibility of vast datasets, and breakthroughs in algorithmic frameworks. Machine learning, a subset of AI, has emerged as a potent tool for training algorithms to discern patterns within data and make predictions. This capability has spurred the proliferation of AI applications across diverse domains, including healthcare, transportation, entertainment, and notably, finance.

In the realm of finance, AI finds utility in numerous applications such as fraud detection, algorithmic trading, risk assessment, and customer service. AI-powered chatbots and virtual assistants streamline customer interactions, reducing response times and elevating satisfaction levels. Let’s take a look at what is in store for the financial field as AI encompasses a greater role:  

How has it influenced the field so far and what can we expect?

Streamlining Manual Processes: AI's most notable impact on finance lies in automating manual tasks. AI-driven systems adeptly generate reports, process voluminous datasets, and execute administrative duties with precision. For instance, AI algorithms facilitate the automation of trade settlements, reconciliation processes, and fraud detection, thereby saving time and minimizing errors. By eliminating manual labor, financial institutions can redirect resources towards more strategic endeavors.

Enhancing Risk Management: AI plays a pivotal role in bolstering risk management within the finance sector. By scrutinizing extensive historical datasets, AI algorithms can forecast market trends, pinpoint anomalies, and assess risk probabilities with heightened accuracy. This enables informed investment decisions, fraud prevention, and risk mitigation concerning financial instruments. Machine learning algorithms excel in identifying correlations, mitigating the potential for human error.

Elevating Customer Experience: AI has revolutionized customer interactions within financial institutions. AI-powered chatbots offer personalized support round-the-clock, slashing response times and enhancing customer contentment. AI algorithms leverage customer financial data to deliver tailored recommendations, ranging from investment strategies to personalized loan offerings.

Facilitating Algorithmic Trading: AI has reshaped trading practices by enabling algorithmic trading strategies. AI algorithms analyze tons of financial data in real-time, discern patterns, and make data-driven trading decisions. This circumvents human emotions and biases, culminating in more objective and efficient trading strategies. High-frequency trading, a subset of algorithmic trading, has surged in popularity owing to AI's capacity to process vast datasets and execute trades swiftly, enhancing market liquidity and efficiency.

Strengthening Fraud Detection and Security: Fraud detection constitutes a critical facet of the financial industry, wherein AI has made substantial strides. AI algorithms analyze extensive datasets, including transactional patterns and user behavior, to identify potentially fraudulent activities in real-time. By flagging suspicious transactions, AI aids in averting financial losses and safeguarding sensitive customer information. AI-driven cybersecurity tools fortify defenses against cyber threats, ensuring the integrity and security of financial institutions and their clientele.

Overall, Artificial Intelligence is changing the way our profession functions, enabling financial professionals to work smarter, not harder. AI’s impact will continue to proliferate within the industry as technology keeps up with the different shifts in architecture.   As AI continues to evolve, we must embrace its possibilities while also addressing the challenges it presents, ensuring a future that is driven by intelligence and compassion.

Sources:

Deloitte. (2023). How Artificial Intelligence Is Transforming the Financial Services Industry. Www.deloitte.com. https://www.deloitte.com/ng/en/services/risk-advisory/services/how-artificial-intelligence-is-transforming-the-financial-services-industry.html

How Artificial Intelligence Is Disrupting Finance. (2017). Toptal Finance Blog. https://www.toptal.com/finance/market-research-analysts/artificial-intelligence-in-finance

The new year has brought much optimism to the markets with high hopes for the Big 7 in the stock market. It is also an election year, so we can almost guarantee a good year in the markets. Since 1928 there have only been four negative years for the S&P 500 total returns index reported by Morningstar during election years. What does this mean for the broader markets? Will A.I. continue to drive the stock market higher to continued new highs? Will new regulations help Bitcoin and the emerging DeFi companies to prosper as well?

So far in the first three weeks of 2024 the market has seen a steady rally to new all-time highs. The Nasdaq is leading the way and pulling the S&P 500 with it. On January 24, 2024, The S&P 500 hit new all-time highs for the 3rd straight day in a row. A combination of investors feeling strongly about the economic outlook of the broader markets, the federal reserve signaling for rate cuts to loosen their grip on inflation control and an upcoming election has left investors and companies alike bullish for the year ahead.

A.I. is continuing to drive the U.S. economy to new all-time highs. I realize that A.I. has a plethora of questions and areas that are being debated by everyone. We are seeing more and more executives come forward and saying that A.I is the future and has the capability to change our lives in similar ways to the internet. For example, Jamie Dimon the CEO of Chase Bank believes that A.I. will be the future of this country. He even said in an interview he believes A.I. will ultimately lead to a 3.5 day work week and our children living well past the age of 100, which is fine by me!

Article 1: https://www.cnbc.com/2023/10/03/jpmorgan-ceo-jamie-dimon-says-ai-could-bring-a-3-day-workweek.html

Article 2: https://www.pbs.org/newshour/show/how-the-rise-of-artificial-intelligence-is-boosting-tech-stocks

For those who don’t know what DeFi is here is the definition, “Decentralized finance, or DeFi, uses emerging technology to remove third parties and centralized institutions from financial transactions” (Sharma, R. (2023, December 23). In 2008 when idea of Bitcoin was started, it was to create a new wealth class that would have no regulatory 3rd party central banking system. Everyone thought the idea was crazy and that it would never happen. It seems this idea however may be changing the very way we do banking, investing, purchasing, loans, and many other forms of Finance through blockchain, or a secure database ledger. Decentralized finance is still in its infancy, but we can expect DeFi, cryptocurrencies and other coin products to be around for a very long time. The asset classes have now passed a huge hurdle and now are legally allowed to create ETF investment vehicles for trading.

Article 1: https://www.coinbase.com/learn/crypto-basics/what-is-defi

Article 2: https://www.wsj.com/finance/regulation/sec-approves-bitcoin-etfs-for-everyday-investors-dc3125ef

Truth be told, we have no way of predicting the future and what is to come. Based on recent events from regulatory bodies like the SEC, we can assume with some certainty that Bitcoin and the other COIN asset classes will be around for the foreseeable future. Blockchain and DeFi will eventually combine with A.I. in the coming years to completely change the world of investing. As the field of quantitative derivatives continues to take off, humans are still able to challenge A.I. at investing since we are all emotionally based and A.I. cannot read through human emotion and psychology. One thing for sure, it is an exciting to be alive and I’m excited to see where the new and emerging technologies take us in the days ahead.

References

Sharma, R. (2023, December 23). What Is Decentralized Finance (DeFi) and How Does It Work? Investopedia. Retrieved January 24, 2024, from https://www.investopedia.com/decentralized-finance-defi-5113835#:~:text=Decentralized%20finance%2C%20or%20DeFi%2C%20uses,transact%20financially%20with%20each%20other.

1. Good Outlook in 2024?

Per the latest survey by the LPL Research team, next year the economy and markets look almost the same. Individuals will have to pay off excessive debt with excess savings. Labor wages can’t seem to catch up to inflation. All of this boils down to using proper risk management techniques. Hopefully, some interest rate decreases will be executed next year as individuals try to get out of bad financial situations. Financial professionals are needed now more than ever to help manage clients’ risk and enable them to plan given specific constraints.

https://www.lpl.com/research/blog/outlook-2024-a-turning-point.html

2. Is Optimism for 2024 in the financial markets overrated?

This article looks at 2024 in terms of investing and portfolio analysis. The author believes that the increase in model portfolios will continue next year, and the need for financial advice will be needed as this occurs. Retirement income planning will be another significant area, as well as the influence of AI in the investor advisor’s role. Finally, more growth in the tech arena should offset other areas and industries as this field continues to expand.

https://www.advisorengine.com/action-magazine/articles/this-optimist-likes-what-2024-promises-for-financial-advisors

3. Is partnership in the financial field back for good?

Interesting take on the client-financial professional relationship and how more and more consumers are looking for a “partner” as opposed to a manager for their investments and fund management. The emphasis on customer relationships and communication is obvious as more individuals search for financial advice and support.

https://www.lifehealth.com/the-new-reality-for-financial-professionals/

4.      Making Goals for 2024

According to one survey (New Year’s Financial Resolutions Survey, 36% more Americans are planning to make finance-related New Year’s resolutions for 2024, compared to 2023. Are you one of them?

Per the article, Americans are ready to make 2024 the year of Financial Resolutions that forces them to stick to a budget and focus more on debt management. According to the article, these are the key findings of the study:

Shared Financial Goals: Nearly 1 in 2 Americans are planning to make finance-related New Year’s resolutions.

New Year’s Spending Cut: Nearly 3 in 4 Americans plan to spend less money on New Year’s plans this year than last year.

Most Challenging Resolutions: More than 1 in 4 Americans say financial resolutions are the hardest resolutions to keep.

Price for Vice: People want an average of $176,550 to give up their top vice for a year.

Wallet Concerns for 2024: Nearly 1 in 4 people think 2024 will be worse for their wallet than 2023.

Financial Anxiety: Nearly 2 in 3 Americans are anxious about the future of their finances.

https://www.lifehealth.com/new-years-financial-resolutions-survey/

5. Bonds – the Comeback Kid?

Finally, an article on bonds and how fixed income securities are become a growing area as financial advisors navigate the variety of options for clients. The higher interest rates have made this financial investing area more popular than ever. Here’s a big “Bond” Voyage to 2023!

https://www.lifehealth.com/bonds-are-back/

This month features jobs within FINRA, the SEC, and the Federal Reserve. Check them out and let’s see if they pique your interest!

FINRA

https://www.finra.org/careers

FINRA, the Financial Industry Regulatory Authority, offers various career opportunities in the financial industry. They regulate brokerage firms, exchange markets, and ensure compliance with securities regulations.

As a FINRA employee, you join a diverse and talented team of industry leaders who make sure investors are protected and the market is trusted. Discover your opportunity to oversee more than 634,000 brokers across the country, analyze billions of daily market events, use innovative AI and machine learning technologies, and drive our award-winning diversity initiatives forward, and beyond.

FINRA Jobs include:

Compliance Examiner: These professionals ensure that member firms comply with FINRA and SEC rules and regulations. They conduct examinations and reviews to assess compliance.

Regulatory Analyst: Analysts interpret and implement regulatory changes, assist in policy development, and perform data analysis related to market trends and compliance issues.

Legal and Enforcement: Attorneys and legal professionals work on enforcing FINRA rules, handling disciplinary actions, and providing legal guidance.

Technology and IT: FINRA requires professionals in IT roles to develop and maintain the technology infrastructure that supports their regulatory mission.

Finance and Accounting: Roles in finance and accounting deal with budgeting, financial reporting, and managing the organization's finances.

Human Resources: HR professionals at FINRA handle recruitment, employee relations, benefits, and other HR functions.

The SEC

https://www.sec.gov/about/careers

The SEC is looking for the best and brightest to help strengthen their team in order to better serve as the investor's advocate. The Securities and Exchange Commission is currently seeking qualified applicants for numerous positions. Applicants must be U.S. Citizens. Positions are located in the SEC’s Washington, DC headquarters and in 11 regional offices in the United States.

Investing in your career – Could this be your next step?

Attorneys: The SEC hires attorneys to enforce securities laws, provide legal advice, handle litigation, and draft regulations.

Economists and Financial Analysts: Professionals in these roles conduct economic and financial analysis, assess market trends, and provide expertise in rulemaking and enforcement.

Compliance Examiners: These individuals examine registered entities (such as investment firms, advisors, and brokers) for compliance with SEC regulations.

IT and Cybersecurity Specialists: As technology is integral to securities markets, the SEC employs IT professionals to manage systems, cybersecurity, data analysis, and technology-related compliance.

Accountants and Auditors: Individuals in these roles review financial statements, investigate accounting fraud, and ensure compliance with accounting standards.

Policy Analysts: They research and analyze market trends, propose new regulations, and contribute to the development of SEC policies

Human Resources, Communications, and Administration: Support roles like HR professionals, communicators, and administrators are also essential in running the SEC.

The Federal Reserve

https://www.federalreserve.gov/careers.htm

The Federal Reserve System is the central bank of the United States. It performs five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest.

The Federal Reserve:

·        Conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy

·        Promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad

·        Promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole

·        Fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments

·        Promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.

Do these Fed jobs appeal to you?

Economists: Economists at the Federal Reserve conduct research, analyze economic data, and provide insights into monetary policy decisions.

Bank Examiners and Supervisors: These professionals assess banks' financial health, compliance with regulations, and overall risk management practices.

Financial Analysts: Analysts at the Fed examine financial markets, assess risks, and contribute to the development of policies related to monetary and financial stability.

Policy Analysts: They research and analyze economic and financial trends, contributing to the formulation of policies that influence monetary policy and financial regulation.

IT and Cybersecurity Specialists: The Federal Reserve requires professionals to manage and secure its technology infrastructure, ensuring the safety of financial systems and data.

Legal and Compliance Professionals: Attorneys and compliance experts provide legal guidance and ensure regulatory compliance within the Federal Reserve System.

Human Resources, Communications, and Administration: Support roles such as HR professionals, communicators, and administrators are essential in running the Federal Reserve efficiently.

For more information on jobs like this, check out each of the following sites:

US Jobs – Government Job site

https://www.usajobs.gov/

Business and Finance – Government Job Site

https://gogovernment.org/career/business-and-finance/

Careers at the US Treasury

https://home.treasury.gov/about/careers-at-treasury