The AI Revolution Comes for Wealth Management

Denver7 interviewed Nate, who is buying a house and won’t shut up about it. Tim is down the AI rabbit hole and has made some amazing discoveries. Ben has gathered several strategies to reduce student loan anxiety.

01. Deep in the homebuying process

From Nate Hoskin, Founder & Lead Advisor

I am officially buying my first home! I’m making the purchase with my partner and we are both very excited. We went under contract last week and will (hopefully) close on April 4.

It’s one thing to study the homebuying process for a CFP exam or in college, it’s another monster to do it for real. That said, here are three pieces of knowledge that will save me over $10,000 at the closing table.

1. Force a rate matchIt’s essential to comparison shop when applying for a mortgage. The first number you are given is the highest and asking politely won’t save you money.Throughout the early stages of the process I applied for three mortgages. Each one checked my credit, but because of the shopping window it will only count as one inquiry on my report. I applied for one mortgage, received the fee schedule, then took that information to the next one. When they were able to beat the first price, I brought that info to the next lender.Over the course of 10 days, I was able to reduce my interest rate by 51 basis points, which reduced our monthly payment by over $400. We were also able to receive lender credits to reduce our closing costs by $4,000.

2. APR vs APYWhen I got the first two loan estimates, one had a lower APY but a higher APR. The APY is the interest rate on your loan, the APR includes the interest rate as well as all fees associated with the loan. So essentially, one loan offered a lower rate but would cost more in total.Understanding APR vs APY helped me find the best loan possible.

3. Concessions are essentialBuying a house is expensive, and I’m not talking about the down payment. In fact, the down payment is still yours because you are buying an equivalent amount of equity in the home.The real expense is closing costs. Closing costs are between 3-6% of the total value of the home. On this $500k home that is at least $15,000! That is just the cost of the transaction, so you never see that money again unless you can have the seller pay.As part of our offer, we asked for $10,000 is seller concessions. Alongside the savings on the mortgage front, these concessions will completely cover our closing costs. The only money we will pay up front will be our down payment.

Why would we buy a home now, isn’t it a terrible time?

There is really no “good” time to buy a house. When interest rates are high, mortgages are expensive. When interest rates are low, houses are expensive. We think buying a cheaper house and refinancing later is technically better, but it will never be optimal. Rather than timing the market, we sought out a home we adore and will live in for a long time.

02. How AI is Revolutionizing the Wealth Management Industry

From Tim Frenzel, Head of Data Analytics & Research

The investment management industry has been gradually shifting from traditional manual processes to a more data-driven approach, fueled by rapid advancements in technology and the influx of data. However, we (and I certainly intend to) can take things a step further by embracing AI to revolutionize the industry.

Hyper-personalization is the need of the hour, and wealth managers (like us) must cater to the growing demands of their clients by offering personalized services. Wealth managers are shifting from a push-based sales approach to a needs-based advisory approach, investing in training and development to ensure that our people are equipped with the necessary skills to leverage these new technologies effectively. This will not only allow us to provide timely and consistent advice but also to create adaptable and tailored investment portfolios. Moreover, AI is also becoming an increasingly popular tool to support relationship managers. Automating repetitive and time-consuming back-office tasks frees up our RMs to focus on more customer-oriented tasks that require human judgment, ultimately leading to stronger and more enduring relationships with our clients.

Causal AI is a game-changer in the industry, going beyond simple correlations and identifying the true causal relationships between financial variables. It's no longer enough to rely on traditional AI to identify risks and construct portfolios; we need to understand the underlying cause-and-effect relationships that generate those correlations. When combined with human expertise, causal AI can help asset managers make more accurate investment decisions, identify factors that affect investment outcomes, and adjust their investment strategies accordingly. Let's not forget that AI is a tool that supports investment managers, not a replacement for human judgment. The most successful investment managers will be those who can effectively integrate AI into their investment process while still maintaining the human touch that clients value.

03. Battling Student Loan Anxiety

From Ben Silvernale, Strategic Advisor

I have a philosophy that has never let me down: always have a contingency plan.

There are high expectations when it comes to the Supreme Court deliberation regarding the forgiveness of federal student loans, but I have a lot of reservations despite my own personal beliefs. Since the payment pause has been extended to the fast approaching date of June 30, it is essential to have a game plan for the worst outcome from the decision.

First, make sure that you have the best possible repayment plan selected for your loans. When doing this, make sure to consider other factors that might affect the total amount of repayment in the future. This is especially important for those selecting income-based repayment plans.

My girlfriend is planning on starting a Master’s in Social Work program in the fall and, while income-based repayment plans would certainly make sense with only her income upon graduation, if we were to get married, the income from both of us would be factored into the monthly payment. This means that we might end up paying twice the amount over the life of the loans if we aren’t careful because discretionary income rises with two earners, which is a key element in deciding income-based repayment options. Sometimes that might mean taking the standard level repayment plan as it makes the most sense.

This leads me to another factor we considered that is worth looking into: loan forgiveness options with your repayment plan. The timeline to qualify for income-based repayment loan forgiveness is 25 years, but only 10 years for student loans for public service education. For more info, visit this article by Forbes. There are quite a few options and considerations depending on the situation, so be sure to explore this. There is no shame in relying on loan forgiveness if that means you have the ability to make a down payment on a future house.

Finally, and most important of all, be realistic and proactive. It sucks to have debt hanging over your head, but it feels even worse when you could have made a better decision in hindsight. Talk to a financial aid counselor and make a plan, as almost all schools have one to help. Save yourself the headache and reach out, as it might be one of the best (and most likely free) investments you can make.

What do you want to learn about next?

More about AI for investing and wealth management

A full guide to the homebuying process

Our economic outlook for the rest of 2023

“To improve is to change; to be perfect is to change often.”

- Winston Churchill

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