As AI upends financial services, could governance become an advantage?

How to govern for AI risk

While Naqvi emphasizes that there are a host of potential pathways for AI adoption in financial services, she believes that certain core principals need to be held to for appropriate governance to work. That begins with an acknowledgement that the same human and firm responsibilities apply even when decision making or information gathering is being outsourced to third-party providers and non-human AI agents.

Human oversight will remain essential, she says. Investment managers and fund issuers will have to understand the limits of the AI models they’re using and ensure that they remain responsible for any final analysis. Documentation and traceability of decision making will also be crucial, as will communication between advisors and clients. AI may make investment management feel more like a black box to clients, which Naqvi believes will make advisors’ jobs all the more critical. Softer skills like communication will be more important than ever, she says. Ethical and transparent communication will be key.

Naqvi notes that while much of the AI conversation has been dominated by a narrative of inevitability, there is a great deal that is not yet decided about how AI will be used. Consumers and citizens will play a role in those decisions and advisors will see how consumer preferences shape AI adoption in financial services.

While the path for AI adoption may change and the acuity of each particular risk that Naqvi identifies may way and wane, she argues that the core goal of human responsibility and communication should be placed centrally in any governance framework. She believes that as this trend progresses, advisors can serve as key advocates for the kind of governance that might give them a trust advantage.

“I think [advisors] need to just continue to press the point that AI may change the inputs into advice, but it should not change the duty of care. And at least legally, that still continues to rest with the individual. So fiduciary responsibility continues to sit with the individual. And that’s why the ethics and professional integrity remain as important as ever,” Naqvi says. “The specific steps to take will vary by organization, will vary by jurisdiction, because this will be a messy transition with uneven adoption. I’m reluctant to give a single silver bullet for how to do that. But, I think keeping professional integrity and the fiduciary responsibility at the heart and at the core of everything that’s done is a good North Star.”