Morgan Stanley's Finn: AI will commoditize lower-end advice

Artificial intelligence will erode the bottom of the advisory value proposition while client data, private-share access and lending terms keep large firms hard to copy, Morgan Stanley Wealth Management head Jed Finn said.

Speaking at the BMO Financials Conference Monday, Finn said advisors whose business rests on asset allocation and financial planning face commoditization. "There'll probably be some parts of the lower end of the advised value proposition that it dis-intermediates," he said, according to AdvisorHub's report of the event. "Is there really anything that differentiated about a 60/40 portfolio? Planning tools? Agents are actually pretty good at running Monte Carlo simulations."

The divide separates a model portfolio and financial plan, which Finn said AI can approximate, from private-share access, lending terms and relationship pricing, which he said it cannot.

Morgan Stanley's Nov. 4 Form ADV shows $1,961.9 billion in regulatory assets across 2.7 million accounts, flat with the firm's Aug. 16 filing.

Finn said the firm's 21 million clients conducted 1.4 billion transactions across 3 billion tax lots in the past 12 months, data Morgan Stanley uses to train its own models on how clients behave around live events, risk tolerances and objectives. The firm also administers equity distribution for half of the technology industry's unicorns valued above $1 billion, he said, and can help those companies find liquidity for early investors and employees through its workplace business without sharing sensitive data with outside providers.

"You can't prompt access to private shares. You can't prompt access to the alts platform that we have," Finn said. Morgan Stanley is building some of that plumbing in-house. It agreed Nov. 9 to buy Vinyl Equity for in-house stock transfers, a deal expected to cost $65 million to integrate over a couple of years, as Private Wealth Daily previously reported.

Finn said the relationship, not the analysis, is the asset. Two people in identical circumstances can have very different optimal answers depending on what they want for themselves and their families, he said, and advisor-client ties remain "incredibly strong and incredibly deep."

Finn expects consolidation rather than dispersion. "I actually think that the optimization effort will lead to big firms getting bigger," Finn said. He argued clients will resist spreading cash across institutions for better rates if it costs them relationship-based pricing or preferential lending terms. That leaves the smaller firm's case resting on the parts of the service a client cannot get by prompting, and on whether those parts command a fee the client keeps paying.