A recent paper emphasizes the necessity of prioritizing ethical considerations in the integration of artificial intelligence (AI) within investment management.
The research conducted by the CFA Institute, titled “Ethics and Artificial Intelligence in Investment Management: A Framework for Professionals,” reflects the increasing reliance on AI in wealth and asset management, encompassing areas such as investment strategies, risk assessment, trading, and automated advisory services.
Key concerns highlighted in the paper focus on ensuring that algorithms employed for asset allocation, stock selection, and other functions genuinely prioritize the best interests of investors, while maintaining transparency and explainability.
The report advocates for organizations to cultivate a “client-centric AI innovation culture,” aimed at safeguarding the integrity of data, minimizing biases, and avoiding unnecessary complexity and obscurity. It also stresses the importance of regularly testing and reviewing AI models within any regulatory framework that may be established.
The topic of ethical AI has gained traction among legislators and regulators in recent years. Notably, the EU introduced guidelines on AI ethics in 2019, later followed by an initial draft of AI Regulation in April 2021.
Rhodri Preece, Senior Head of Research at the CFA Institute, remarked, “While AI adoption presents substantial potential advantages, it also introduces various risks. The growth in data sources and the accessibility of AI tools for leveraging big data can enhance investment decision-making, yet can also add layers of complexity.”
Preece further noted that the evolving landscape of data and sophisticated decision-making algorithms necessitates a reevaluation of the ethical implications in investing. The framework aims to assist professionals in the responsible design, development, and implementation of AI solutions.