Why ethics could become a key differentiator in an AI age

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Information scarcity has been a key element of financial services, whether you’re analyzing stocks or providing tax advice. A central concern related to artificial intelligence is that information asymmetry is disappearing and with it the basis for charging for services. If everyone can access the same stock data and tax strategies at the same time, what are clients paying for?

A new report from the CFA Institute addresses this “structural transition” in the flow of information, which could affect everything from price formation to the meaning of investment skill to the stability of the entire financial system.

Mona Naqvi, the report’s author and senior director of research advocacy and capital markets policy research at the CFA Institute, says the profession is “moving from information stewardship to intelligence stewardship.”

She spoke with Globe Advisor about her research and what it means for advisors.

What’s happening to the information edge investment professionals held traditionally?

In the past, alpha really did stem from who could access information first and then who could best interpret that information. What we’re starting to see as AI becomes more abundant [is] a potential for that shift occurring in which what matters more is the judgment overlay. Because if we’re using shared foundational or analytical models, the potential for real-time dissemination of information becomes far greater.

So, although we do believe that information does eventually cascade through the system, thanks to the efficient markets hypothesis, the reality is that, in today’s world, there are very real frictions that prevent information spreading instantly. But AI possibly changes that.

For advisors, specifically, can you talk about the role of ethics and why that becomes more important?

It’s ultimately a profession that’s rooted in trust. Trust stems from an asymmetry of information to begin with and it comes from the client having that trust in the fiduciary responsibility and knowing that the advisor is working in their best interests. That becomes possibly more important than ever before, especially as you democratize access to the technical information.

What will differentiate the best professionals from their peers will be who is most trusted to govern those models and to provide that judgment.

If you’re looking for a competitive edge and that edge is no longer sourced from the technical side of things, then it’s human to look for something relatable and personal. And ethics is a huge piece of that.

The idea of expertise is already being challenged by “finfluencers” and by AI platforms such as ChatGPT and Claude. How do you see professional competence and expertise being valued in the next five years?

This is a core question that we think very deeply about when we’re in the business of providing financial education. The skills that will be required in the investment profession are clearly going to transform considerably.

We have this idea … of this human intelligence versus artificial intelligence continuum. You can start on one end of the spectrum with complete human accountability and decision-making and then all the way on the other side, you have full machine decision-making. And it comes back to this idea of uneven adoption.

There will be differences in what constitutes the role of humans in the investment process; and so, the skills that are required are going to vary depending on how much of the role is augmented and/or substituted by the artificial intelligence.

There’s a common concern that the roles will be taken away by artificial intelligence. But in fact, what we’re seeing is that it’s more about role evolution and skill evolution. And the common denominators that underscore all of that we suspect will continue to play a role come back to … the ethics in the equation and the judgment in the equation.

It’s those softer human skills that you may not be able to necessarily program or guarantee from shared analytical platforms that can become that differentiator.

The report talks about the effect of AI on diversification and managing risk. What are some things that portfolio managers can do to be aware of that and to try to account for it?

If everybody relies on similar models and cloud providers and optimization engines, the competitive edge will most likely stem from who can best supervise those models.

It’s preparing for a workforce and an infrastructure that can challenge the models, challenge the underlying assumptions, better define objectives, identify blind spots and really scrutinize and build the critical thinking muscle. And ultimately, navigating the inevitable uncertainty, particularly as we are in the midst of this transition.

But as I said, ethics is such an important common denominator throughout all of that and will probably become a differentiating factor that clients will increasingly look to in the years to come.

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