Super funds poised to embrace ChatGPT

By Elizabeth Fry

ChatGPT has the whole world talking about the booming generative AI market and its implications for financial services.

Since ChatGPT can produce content to order, it solves a massive problem for super funds.

This is the view of Michael Kollo, chief executive of Evolved Reasoning and chair of State Super's academic oversight body, whose says pension funds are struggling to create an effective at-scale communication that talks to individual members.

Kollo says what makes it harder for funds is that scalable engagement tools must cover sophisticated financial topics within hundreds of different contexts, and often on demand.

The AI specialist warns that the unique position of pension funds, their enormous member base, and the focus on member engagement now demand a scalable solution.

He cites the rapid growth of the super industry as a reason. This along with consolidation has pushed the membership base to levels never before seen in the Australian market - a trend likely to accelerate.

Members within industry funds now number in the millions, while the employee numbers are in the hundreds.

Meantime, regulation is increasingly pushing for member interest underlining the importance of member engagement.

Kollo argues that the the advent of ChatGPT, as an 'off-the-shelf' AI solution may be a welcome solution to an industry that's historically lagged in technology investment as long as the right risk frameworks are in place.

"Increasingly, the pension funds' job is to communicate with members; they cannot continue to stay at arm's length with a large and growing membership base," he adds.

"With ChatGPT, every single person can have a slightly different conversation with a digital agent which opens up a whole conversation about education and financial literacy.

"Moreover, pension funds need to manage their public-facing brands - from a marketing perspective, they need to be clear about what they stand for."

Chatbots fall short

While simple chatbots have been widely used for years, they have fallen wildly short of being sufficiently intelligent or context-driven.

As he sees it, the arrival of ChatGPT throws up a unique opportunity for funds to converse and engage with their many, many members individually at scale, cheaply without adding much technical expertise.

"It's a massive boon for superfunds and has been dropped in their laps," he argues.

Generally speaking, our understanding of ChatGPT is still patchy. Some are yet to hear about it, although most of the younger workforce use it readily.

"Essentially, it is a really, really good algorithm for manipulating language and good at communicating more complex topics in a personalised way which is perfect for pension funds," he says.

"Lots of people are using it to transform language from shorter to longer, from formal to informal and to ask and answer questions."

With a linguistic IQ measured at over 140, ChatGPT can respond across a range of topics, taking into account members' circumstances and the history of the conversation.

It can effectively adjust its tone, technicality, brevity and suggestions in real-time through engagement, learning and developing the ideal conversational partner for each member differently.

Chaotic innovation 

As we all know, ChatGPT became an overnight sensation when it debuted in November, attracting more than one million users in its first week and 300 million within three months.

As somebody who has worked with AI for some time, Kollo has seen plenty of hype.

Yet, he believes ChatGPT is a very new paradigm. And it is backed by the tech giants. Microsoft's Bill Gates said

ChatGPT is the biggest thing since integrated circuits of the 1980s. And, he ploughed $10 billion into ChatGPT's owner. Microsoft's rollout will see it integrated into Windows 11, as well as the core tools of Microsoft Office.

"The tech giant's change at breakneck speed has used this opportunity to blindside Google through a combination of brilliant product integration and taking a fair bit of business risk," Kollo says.

Moreover, Google's chief executive called it the most important event for every product in the world

"You've got a lot of thought leaders who think this is kind of civilisation-changing technology, both AI and GPT," notes Kollo.

He sees this technology moving into a kind of 'mushrooming' stage globally, a kind of 'chaotic innovation' as the big players will continue to improve the models and push them out into tools we all have access to.

Early adopters of the new technology include Vanguard and UK's Daily Mirror newspaper, which is exploring the use of the chatbot to report local news stories. Reports say Zurich experimenting with ChatGPT for claims and data mining.

Bloomberg has created its own language models and plans to integrate this into its front-end terminal.

Despite excited reports that the chatbot can predict equity prices by analysing the sentiment of news headlines, Kollo argues that AI innovation is NOT about forecasting or stock picking.

The real innovation right now is creating language to cover sophisticated financial topics within hundreds of different contexts, and often on demand.

And conversing with a million people at once.

Additionally, quants like Kollo will say that AI is just another forecasting tool.

He should know.

Having worked in quant funds- from the simplest to the most sophisticated - he will tell you there are no systems that reliably forecast the world consistently.

He points to an oft-quoted piece of research where ChatGPT examines the sentiment of a central bank's conversation on monetary policy to decipher market direction.

The rationale for looking at central bank conversations is there. But without more sophisticated forecasting tools, predictions based on understanding the sentiments of a central bank governor is a step too far.

"That's part of the story," says Kollo. But it's a pretty small part It's a little bit like saying, if I know something about strawberries, I can make you a three-course meal."

Interestingly, ChatGPT can make mistakes with numbers - provide a wrong calculation and insist on its accuracy. But, he goes on to say, it can be used with a fair degree of certainty for anything that relates to language.

Using this technology super funds can transform investment information into simple and relevant emails, contact clients more efficiently, and provide tailored advice.

"If you are a financial advisor, it helps you to summarise a financial report, interrogate it, write an email and answer client questions," says Kollo.

He points out that engagement is a two-way conversation where information is extracted. Privacy concerns notwithstanding, by engaging with their many, many members, super funds can obtain data on members.

Knowing more about members is critical for funds to match the right retirement solutions to members - especially those placed in default funds.

Lagging the early movers

Kollo argues that we are not seeing the adoption of AI because these organisations don't have the sophistication to build them.

"We are not as far ahead as we should be but he argues that that said fund going through a lot of changes such as internalisation, mergers, and regulation which are filling up boards' schedules.

Most directors and executives he has spoken to have played around with ChatGPT.

"So that immediately tells you that this is a friendly technology."

The good news is that funds don't have to develop the technology ChatGPT tools can be taken off the shelf and deployed.

"The way that it's been delivered across the world right now by open AI and by Microsoft puts it in the hands of every single company."