AI-generated responses are becoming more common, whether travelers know it or not.
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An automated financial advisor called PortfolioPilot has quickly amassed $20 billion in assets in a possible preview of how disruptive artificial intelligence could be for the wealth management industry.
The service has added more than 22,000 users since its launch two years ago, according to Alexander Harmsen, co-founder of Global Predictions, which launched the product.
The San Francisco-based startup raised $2 million this month from investors including Morado Ventures and NEA Angel Fund to fund its growth, CNBC has learned.
The world’s largest wealth management firms have been quick to implement generative AI following the arrival of OpenAI’s ChatGPT, launching services that supplement human financial advisors with meeting assistants and chatbots. But the wealth management industry has long feared a future in which human advisors are no longer necessary — and that possibility seems closer with generative AI, which uses large language models to create human-sounding responses to questions.
Still, the advisor-led wealth management space, with giants like Morgan Stanley and Bank of Americahas grown over the past decade, even amid the arrival of robo-advisors like Betterment and Wealthfront. At Morgan Stanley, for example, advisors manage $4.4 trillion in assets, far more than the $1.2 trillion managed in its self-directed channel.
Many vendors, whether human or robotic advisers, end up placing clients in similar portfolios, said Harmsen, 32, who previously co-founded a software company for autonomous drones called Iris Automation.
“People are fed up with standardized portfolios,” Harmsen told CNBC. “They really want opinion-based feedback, they want personalized recommendations. If you think about next-generation advice, I think it's truly personalized and you can control how much you get involved.”
AI-generated report cards
The startup uses generative AI models from OpenAI, Anthropic and Goals Call it, combining it with machine learning algorithms and traditional financial models for more than a dozen purposes across the product, including forecasting and evaluating users’ portfolios, Harmsen said.
When evaluating portfolios, Global Predictions focuses on three main factors: whether investment risk levels match a user's tolerance; risk-adjusted returns; and resilience to sharp declines, he said.
Users can get a report card-style rating of their portfolio by connecting their investment accounts or manually entering their bets into the service, which is free; a $29-per-month “Gold” account adds personalized investment recommendations and an AI assistant.
“We'll give you very specific financial advice, we'll tell you to buy this stock or 'Here's a mutual fund that you're paying too much for in fees, replace it with this,'” Harmsen said.
“It could be simple things like that, or it could be much more complicated advice, like: 'You're overexposed to changing inflation conditions, maybe you should consider adding some exposure to commodities,'” he added.
Global Predictions targets people with between $100,000 and $5 million in assets — in other words, people with enough money to start worrying about diversification and portfolio management, Harmsen said.
The average PortfolioPilot user has a net worth of $450,000, he said.
The startup doesn’t yet take charge of users’ funds, but instead gives them detailed instructions on how to best tailor their portfolios. While that has lowered the hurdle for users to engage with the software, a future version could give the company more control over customers’ money, Harmsen said.
“It's likely that over the next year or two, we'll be building more and more automation and deeper integrations into these institutions, and perhaps even a Gen 2 robo-advisor system that allows you to escrow funds with us, and we'll just execute the trades for you.”
'A massive shock'
Harmsen said he created the first version of PortfolioPilot a few years ago to manage his own newly acquired wealth after selling his first company.
He became frustrated after meeting with more than a dozen financial advisers and realizing that “they were basically just salespeople trying to give you access to this pretty standard approach,” he said.
“I found it to be a very real problem because the only alternative I saw in the market was to basically become a day trader and become my own portfolio manager,” Harmsen said.
“I wanted hedge fund-quality tools and ways to think about risk and downside protection, and portfolio management across all my different accounts and money deposits in crypto and real estate,” he said.
So when he was raising a family and buying a house in San Francisco, he started coding a program that could manage his investments.
After realizing it could have broader use, Harmsen began building a team for Global Predictions, including three former employees of Bridgewater Associates, the world’s largest hedge fund.
The company’s rise has attracted regulatory scrutiny; in March, the U.S. Securities and Exchange Commission accused Global Predictions of making misleading claims on its website about 2023, including that it was the “first regulated AI financial advisor.” Global Predictions paid a $175,000 fine and changed its tagline as a result.
While today's dominant vendors have rushed to implement AI, many will be left behind in the transition to fully automated advice, Harmsen predicted.
“The real key is to find a way to use AI, economic models and portfolio management models to generate advice automatically,” he said.
“I think it's a huge leap for the traditional industry; it's not a gradual thing, it's a very black and white thing,” he said. “I don't know what's going to happen in the next 10 years, but I suspect there will be a huge transformation for traditional human financial advisors.”
