$6 Trillion Shift: AI May Manage 50% of Retail Portfolios by 2027

Last week, I grabbed coffee with an old colleague who has been in the investment advisory industry for two decades. Between sips of overpriced espresso, he asked something that is ingrained in my mind: “ Do you think AI can replace the trust I have built with my clients over the last two decades?” – good question. But, can the answer be a simple yes or no? I don’t think so. So, here’s what I told him: “ Cold machines can’t replace trust and warm human conversations. But, it can surely scale it!”

Robo-advisors are not just a trend; they are a rapidly growing force. According to the ‘Global Asset and Wealth Management Survey’ conducted by PwC, assets managed by robo-advisors stood at $2.5 trillion as of 2022. The survey projected that AI could be managing nearly $6 trillion in assets, which is almost 50% of the retail investment portfolio. 

Let’s explore what this $6 trillion seismic shift means for wealth management professionals like you, and how one can ride this tidal wave without losing the human touch. 

The Statistical Power of AI in Investment Management

The numbers don’t lie. They tell an equally compelling story. Let’s look at some statistics that reflect how AI is reshaping investment management:

• Reports suggest AI algorithms account for nearly 60 to 70% of the U.S. trading volume in 2023. 

• Deloitte’s 2023 study reveals that firms employing predictive analytics have witnessed a 25% improvement in risk-adjusted returns. 

• AI-driven strategies are cost-efficient, as they reduce operational costs by up to 30%, according to Accenture’s report. 

• A Bloomberg study reveals that portfolios managed by AI tools have contributed to a higher CAGR (compounded annual growth rate) of 9%, compared to the 6% growth generated by traditional methods. 

• PwC’s ‘Global Asset and Wealth Management Survey’ states – that 90% of institutional investors believe that deploying advanced technologies like AI, blockchain, and big data will result in better performance outcomes from their portfolio in future. 

2027 Vision: AI Set to Manage $6 Trillion AUM in Retail Portfolio

PwC has made a bold prediction in its ‘Global Asset and Wealth Management Survey-2023’ – that assets managed by AI (such as robo-advisor platforms), will nearly double from $3 trillion in 2022 to almost $6 trillion by 2027 ( $2.5 trillion to $5.9 trillion precisely), forecasting compound annual growth rate (CAGR) of approximately 19.3% over the next five-year time frame.

Here’s a breakdown of the projected growth (year-wise): 

That’s a transformative growth in five years. What does it mean for seasoned financial professionals, who have witnessed the rise and fall of the market and countless trends? This explosive expansion represents not just an evolution, but a revolution in the way you manage your retail portfolio in the future – one that is scalable, smart, and effective. 

“In just 4 years, AI tools may be the primary engine behind half of all retail portfolios,” says PwC’s Global Wealth Leader. That’s not just a captivating statement. It’s a vital alert!

Why It Resonates?

By referring to AI tools as ‘primary engines’, PwC foresees AI assisting in running analyses, making calls, detecting risks, rebalancing, and personalizing portfolios at scale. Here is why it strikes a chord:

• Addressing Fear of Missing Out (FOMO) on AI

There’s a palpable fear of missing out on AI, a fear of being left behind, especially for someone like my old colleague and many others like him, who have built careers on client trust, insight, and good old-fashioned judgment. The visible success of early adopters of AI also amplifies the fear of missing out (FOMO) among wealth management professionals. 

But, when PwC forecasts this $6 trillion AI shift in just four years, it’s not a threat to human advisors – it’s an alert. It means systems you trust are evolving at a rapid speed, calling you to reassess your client experience and identify where human value shines brightest. AI tools with evolving features will enhance your capabilities to optimize portfolios in real-time, utilize predictive analytics to identify risk, and hyper-personalize portfolios at scale. You can shift your focus to behavioural coaching and add more value with strategic conversations that no algorithm can do. 

This shift will only lead to the emergence of a new kind of advisory – one that is insight-rich, tech-augmented, and future-proof. Wealthfront, Betterment Investing, Vanguard, Acorns Invest and Fidelity Go are some of the robo-advisors that have already democratized access to revolutionary investment strategies. 

• Citing Real Forecast Data

What sets this shift apart is its grounding in concrete data rather than speculative hype. PwC’s Asset and Wealth Management Revolution report reveals that businesses leveraging newer technologies, such as AI, reported an 84% improvement in operational efficiency, 80% revenue growth, and a 72% increase in employee productivity. 

Moreover, the forecasted growth rate of 19.3% (CAGR), which nearly doubles the AI-driven assets under management in the U.A. (from 2022 to 2027), is not just theoretical. Previous trends and real-world adoption trends, such as the increasing use of AI-powered tools in the asset and wealth management industries, back them. 

Conclusion

Here’s the big picture: PwC’s “Asset and Wealth Management Revolution – 2024” survey projects global AuM (assets under management) to hit an astounding $171 trillion by 2028. That’s not just growth—it’s a complete transformation, a world of opportunities waiting to be explored and harnessed. 

And the $6 trillion shift toward AI-managed portfolios? It’s not just about technology. It’s about relevance. In a world where investor expectations are evolving faster than ever, embracing AI is not just an option – it’s an imperative, a necessary step for survival and success in the industry.

For financial professionals, this is your moment to pivot from fear of missing out to leading the charge. AI isn’t here to replace the human touch. It’s here to amplify it, so you can do more of what clients truly value: honest strategic conversations and real guidance.

In the future of wealth management, the combination of AI managing portfolios and human advisors managing clients is not just a possibility; it’s a certainty. Your role as a trusted advisor, providing strategic guidance and insightful conversations, will remain as crucial as ever.