An AI-powered financial advisor has $20 billion in assets

An automated financial advisor called PortfolioPilot has quickly acquired $20 billion in assets in a potential preview of how disruptive artificial intelligence could be to the asset management industry.

According to the service, more than 22,000 users have been added since its launch two years ago Alexander Harmsenco-founder of Global Predictions, which launched the product.

The San Francisco-based startup raised $2 million this month from investors and others Morado Enterprises and the NEA Angel Fund to finance its growth, CNBC has learned.

The world’s largest wealth management firms have rushed to implement generative AI in the wake of OpenAI’s ChatGPT, rolling out services that augment human financial advisors with meeting assistants and chatbots. But the asset management industry has been a long time coming feared a future where human advisors are no longer necessary, and that possibility appears to be getting closer with generative AI, which uses large language models to create human-sounding answers to questions.

Yet there is still talk of an advisor-led wealth management space, with giants like Morgan Stanley and bank of Americahas grown over the past decade, even amid the advent of robo-advisors like Betterment and Wealth front. At Morgan Stanley, for example, advisors provide leadership $4.4 trillion of assets, far more than the $1.2 trillion managed through the self-directed channel.

Many providers, whether human or robo-advisors, end up placing clients in similar portfolios, says Harmsen, 32, who previously co-founded an autonomous drone software company called Iris automation.

“People are fed up with cookie-cutter wallets,” Harmsen told CNBC. “They want really opinionated insights; they want personalized recommendations. When we think about next-generation advice, I think it’s really personalized and it’s up to you how engaged you are.”

The startup uses generative AI models from OpenAI, Anthropic and Metas Llama, by combining it with machine learning algorithms and traditional financial models for more than a dozen purposes across the product, including for predicting and assessing user portfolios, Harmsen said.

When it comes to evaluating portfolios, Global Predictions focuses on three key factors: whether investment risk levels match the user’s tolerance; risk-adjusted returns; and resilience to sharp declines, he said.

Users can get a grade on their portfolio by linking their investment accounts or manually entering their stakes 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 these stocks, or, ‘Here’s a mutual fund that you’re paying too many fees for, replace it with this,'” Harmsen said.

“It could be simple things like that, but it could also be much more complicated advice like, ‘You’re overexposed to changing inflation conditions, maybe you should consider adding some commodity exposure,’” he added.

Global Predictions targets people with between $100,000 and $5 million in assets — in other words, people with enough money to worry about diversification and portfolio management, Harmsen said.

The average PortfolioPilot user has a net worth of $450,000, he said. a

The startup does not yet manage user funds; instead, it gives paying customers detailed guidance on how best to fine-tune their portfolios. While that has lowered the barrier for users to get involved 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 maybe even a Gen 2 robo-advisor system that will allow you to keep money with us, and we’ll just execute the trades for you. “

Harmsen said he created the first version of PortfolioPilot a few years ago to manage his own new wealth after selling his first company.

He became frustrated after meeting with more than a dozen financial advisors and realizing they were “really just salespeople trying to provide access to this fairly standard” approach, he said.

“It felt like a very real problem to me because the only alternative I saw in the market was actually becoming a day trader and becoming 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 the buckets of money in crypto and real estate,” he said.

So around the time he started a family and bought a house in San Francisco, he started programming a program that could manage his investments.

After realizing it could have broader applications, 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 led to regulatory scrutiny; in March, the Securities and Exchange Commission said accused Global Predictions would make misleading claims on its website in 2023, including that it was the “first regulated financial AI advisor”. Global Predictions paid a $175,000 fine and changed its slogan as a result.

As today’s dominant providers rush to implement AI, many will lag behind in the transition to fully automated advice, Harmsen predicted.

“The real key is you have to find a way to use AI and economic models and portfolio management models to automatically generate advice,” he said.

“I think this is such a huge leap for the traditional industry; it’s not incremental, it’s very black or white,” he said. “I don’t know what’s going to happen in the next decade, but I suspect there’s going to be a huge shakeup for traditional human financial advisors.”