AI Regulation in Wealth Management: Industry Has the Tools to Build Appropriate Framework

The marriage of artificial intelligence and wealth management presents regulators and industry incumbents with a challenge: balancing fintech innovation with investor protection. Many questions arise as AI systems become more sophisticated and are deeply embedded into advisor workflows. For example, can significant modifications to the current regulatory framework provide the guardrails to avert disaster? At what cost will investors be left unprotected? 

The Securities and Exchange Commission's recent proposals to regulate "covered technologies" (including AI and digital engagement) inform this debate, which centers on whether it is necessary, practical, or cost-effective to implement additional oversight. Regulators appeared to be more concerned about theoretical risks, whereas registered investment advisors argued that existing regulations were enough to protect investors. The tension raises a key question: Should regulation preempt potential disasters or respond to a hypothetical aftermath? 

Changes in SEC leadership, new executive branch priorities, and the hyper-growth of generative AI have framed a new dialogue around oversight. This context provides the ingredients for this report, which lays out a framework that evaluates the SEC's original AI disposition and the industry's path forward. 

Key questions discussed in this report: 

• Do AI regulatory concerns address imagined threats and stifle innovation?
• Can investors be protected from theoretical AI risks while AI access and benefits are institutionalized?
• Can existing regulatory frameworks adapt to the state of AI risk, or is an entirely new approach needed?

Companies Mentioned:

American Council for Capital Information (ACII), Association of Credit Unions (ACU), Addepar, AdvisorArmor, AdvisorEngine, Alternative Investment Management Association (AIMA), American Securities, Anthropic (mentioned with Claude), Assetmark, Betterment, BlackRock, Blaze (Multi-Custodial), Bank of New York Mellon (BNY Mellon), Canvas, Cetera Financial, Charles Schwab, ChatGPT, CLARITY AI, Committee on Capital Markets, COMPLY, ComplianceAlpha, Consumer Financial Protect Bureau (CFPB), DataPoints, DNA Behavior, Docupace, Edward Jones, Financial Marketing Group Suite (FMG Suite), Focal, Goldman Sachs, Hearsay, International Business Machines (IBM), InvestorCOM, iRebal (now Schwab), J.P. Morgan, Knight Capital, KWANTI, Levitate, LPL Financial, Microsoft (including MS Copilot for Dynamics, MS Copilot for Financial Services (FS), MS Power Platform, MS Power Pages), Morgan Stanley, National Association of Securities Professionals (NASP), Nasdaq, NICE Actimize, Nitrogen, Orion Risk Intelligence, Raymond James, REVVER, Robinhood, Salesforce (including Salesforce Einstein, Salesforce Experience, Salesforce Financial Services, Salesforce Flow, Salesforce Mulesoft), Seismic, Securities Industry and Financial Markets Association (SIFMA), Securities and Exchange Commission (SEC), Smartria, SS&C Black Diamond, State Street, T.Rowe Price, Vanguard, Vestmark, Visory, Wealthfront, YChartsReport,