Financial advice firms are lacking full artificial intelligence (AI) policies, with many citing compliance and regulation as barriers to adoption of the technology, a report from NextWealth has shown.

The report, which assessed the material barriers that firms need to address to move from pilots to scale with AI, found that fewer than 5 per cent of advisers had full AI policy, guidelines, and sign-off.

Compliance and regulation was the top-ranking barrier to AI adoption, alongside a lack of systems integration, with 79 per cent of advice firms seeing it as an obstacle, including 19 per cent that viewed it as a very significant barrier.

Financial advisers also saw a lack of a structured due diligence framework as a key barrier, cited by 77 per cent of respondents.

NextWealth associate research director and author of the report, Chanelle Paynter, argued that clearing these barriers by putting governance and policies in place, standardising core processes, and fixing data plumbing and APIs should be providers’ focus.

“Firms want proof, not promises,” Paynter said. “They want plain English explanations of how these models work, where data sits, how it’s tested, and how client detriment is avoided. And they worry that they may not yet know what the right questions to ask are.

“They also worry whether providers can provide straight, audit-ready answers to those questions once known.”

While firms proved they were able to quickly trial, learn, and adopt low-risk, repeatable use cases that deliver gains, few firms were tackling the bigger challenges that could transform the advice process.

“Our findings point to the reason why,” she continued. “Many of the foundations simply aren’t in place.

“Firms have rightly chased the quick wins, trialing meeting note-takers and similar tools, taking a tactical approach to adoption.

“Promises that AI will ultimately help to ‘close the advice gap’ by doubling capacity and cutting the cost-to-serve, will be nigh on impossible to realise without core building blocks such as clear governance and policies, reliable data connectivity and integrations, consistent processes and a simple strategy.

“Providers have a clear role here, and it is in their own interests to act. In a market where more than half of firms are open to changing AI provider within the next year, practical support in the form of governance packs, real integrations, evidence of value will be key in keeping business.”

Paynter noted that while suitability assessment and reporting provided the greatest opportunity, progress had been slow as many tools still ‘fall short’ on accuracy and logic, while AI amplifies the process already in place.

Therefore, if templates and checks are inconsistent, AI will scale the inconsistency, so firms are waiting until these issues have been resolved.

The report also highlighted that return on investment questions were surfacing, with Paynter stating: “Firms are weighing license costs against time saved, especially where AI sits alongside existing templated processes and still relies on manual data entry.

“AI has proven its efficiency gains, but its long-term impact will depend on solving integration and data quality issues."

The vast majority (84 per cent) of advisers reported increased speed and operational efficiency after adopting AI, although many firms did not yet have a long-term plan for reinvesting the time that AI frees up.

“It is not just AI governance and due diligence gaps we need to be mindful of, it seems there is a post-AI adoption strategy gap emerging too,” Paynter said.

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