Artificial intelligence has the potential to enhance investment management for pension plans, as well as board governance and personalizing communications to workers, according to a new report from the CFA Institute Research & Policy Center.
The center published the report, “Pensions in the Age of Artificial Intelligence,” in December, the result of trying to understand how the AI-driven digital transformation can be applied to all activities throughout the pension plan value chain, said Rhodri Preece, senior head of industry research at CFA Institute.
“These are large institutional investors, and we’re not yet at that stage where adoption is widespread,” said Preece. The report is available on the CFA Institute’s website.
“Part of the idea with this piece is to look at some of the opportunities and some of the early-use cases (in which) AI tools are being used to serve as a pointer and as illustrative examples for plan sponsors that may be considering adopting AI, knowing that we’re in a direction of travel where we envisage greater usage of these tools.”
The report was put together after CFA Institute spoke to numerous topic experts and thought leaders in the pension fund industry, as well as trustees, consultants, plan sponsor executives, investment managers, and third-party technology providers, said Preece.
The report itself provides potential use cases of AI in membership and payment channels, recordkeeping and account management, governance and investment strategy, investment management and the retirement payout phase.
Preece said the application of AI will be particularly useful in board governance.
“One of the big challenges as we all know has been on pension trustee knowledge and education and financial literacy among those charged with governance as well as the beneficiaries, historically being relatively low,” said Preece. “I think this is another area where AI can really help to facilitate comprehension through providing streamlined reporting to show and to allow trustees to compare among different options when they’re doing manager selection, for example, and to have a more current view of the funded status of the plan.”
While a great deal of attention on AI for plan sponsors has been targeted toward investment management function, he said the most interesting part was how AI can provide enhanced value in other areas.
“Clearly, CFA Institute is a professional body that trains and educates professional investors. That's really our focus, and we had a good understanding of how you can use AI and things like portfolio construction and risk management and investment analysis and so forth,” said Preece.
“It's all of the other things in that value chain, from client onboarding through to reporting and providing personalized communications, to even things like governance, that, to me, was the more interesting part, because it's relatively less explored, and I think those are the areas, arguably, where there are some of the greatest opportunities for delivering enhanced value to beneficiaries.”