Simplifying investment management compliance with artificial intelligence
TSAI
Today, asset managers are dealing with more regulatory and compliance requirements than ever before in the industry. Investment managers are subject to the fiduciary standards set by the U.S. Securities and Exchange Commission (SEC) for their clients, and therefore need to take extra care to ensure that they comply with these regulations.
Here, we share how the emergence of finance-specific AI software is making it easy for investment managers to demonstrate compliance with regulations quickly and clearly.
AI Helps Raise Investment Advice Standards
Depending on the type of asset manager, the regulatory and fiduciary duties they face vary. For example, registered investment advisors have a fiduciary duty to their clients, while investment brokers must comply with what is known as a suitability standard.
Regardless of the specific standards and regulations, all investment managers must ensure that they can demonstrate that all of their investment recommendations have the best interests of their clients in mind and are based on current and accurate information.
The burden of proof that asset managers bear can be very onerous and time-consuming. We have heard from clients that their lives would be easier if they had point-in-time evidence to support their recommendations because they would no longer be busy compiling research reports.
AI can provide more complete and accurate market research
With the right AI tools, investment professionals can demonstrate that their investment ideas are well thought out and backed by evidence. AI significantly reduces the amount of time investment managers spend on research and data collection. Think of all the data a manager must have on their client portfolios: macro data (interest rates, market-moving news), micro data (individual stock news, company financial reports), portfolio construction (risk-appropriate portfolios), and even alternative data like ESG. It takes a lot of work to stay informed of all the potential impacts on a client's portfolio.
With AI, research that used to take weeks can now be done in minutes. With a 360-degree view of the market, investment professionals can easily show clients that their recommendations are based on thorough research, not gut feeling or research on a specific segment in the market.
The right AI tools can even automatically generate ideas for investment managers. At TSAI, we consider each manager's specific portfolio and investment style before recommending personalized buy/sell ideas. With our tools, investment professionals (and their clients) can rest assured that every potential stock in their investment universe has been considered and analyzed from a data-driven perspective before making a recommendation.
TSAI’s “Ideas” provide investment managers with powerful buy/sell recommendations based on their investment style and preferences.
AI helps asset managers make better, more data-driven portfolio decisions. Asset managers cannot make any recommendations that impact their clients’ portfolios lightly. Investment managers must understand each client’s risk preferences, priorities, and goals before making recommendations. Someone approaching retirement has a different risk profile than someone just entering the job market, some people place a high value on ESG-compliant investments, someone about to buy a home has a different risk profile than someone with a longer-term view, and so on.
Every time an investment professional recommends that a client enter or exit a position, change their risk profile, or update their sector exposure, those recommendations need to be backed by up-to-date, thoughtful research.
With TSAI, our AI platform built specifically for investment managers, managers can easily support all of their recommendations with data pulled from thousands of real-time information sources, distilled into easy-to-understand summaries. These summaries can be saved and exported to share with clients, and explain the reasons for each recommendation. This provides managers with a profile they can access at any time to provide more context about recommendations they have made in the past.
All recommendations made by our algorithms are tailored to each client’s investment profile and style, so managers can clearly demonstrate that their recommendations are tailored to the client’s specific needs. Additionally, the recommendations are derived from machine learning algorithms, so they are unbiased, objective, and backed by data. This helps asset managers remain impartial and avoid conflicts of interest.
Conclusion
Financial professionals face more complexity than ever before when it comes to compliance and regulation. Fortunately, with the right tools, such as AI, they can save time with real-time data that is unbiased, accurate, and comprehensive, allowing them to spend more time on other aspects of their business.