Concerned about the impact of AI on the Industry
Hi y'all
Am I the only one truly concerned about the extremely fast advance of generative AI tools and their impact on Investment Banking and on the workforce (at all levels) in general? At the beginning I found curious all these new tools such as ChatGPT, Gen-1, Dall E2, or Google´s Bard, but if you do some research and you talk to people in the AI industry you realize how close we are to technologies that can fully replace us.
Initially, I saw the development of these tools as progress and as something that can be very useful - automates all the boring admin work, it helps us to draft bullet points, automation of financial modelling and deck assembling, AI will probably process comments... I saw AI as a powerful tool to help junior staff to get rid of a big part of the grunt work, allowing us to either go home quicker (end of 80 hours lifestyle) or produce twice as much work (more production, more revenue, therefore higher bonuses and compensation).
However, the more I know about the advancements of AI, and the capabilities of these systems, you realize that these machines can do anything, even taking care of the most "creative" aspects of the job, such as coming up with new ideas for a pitch, providing recommendations to clients, designing go-to-market strategies, anticipate problems in a due diligence...
If you think about it, the only job that could be left for humans is the role of Managing Directors, and this is not because AI can't really do the job (probably robots would outperform all MDs), the only reason MDs might survive is because clients will probably still prefer to deal with people than with bots.
I might sound too alarmist, probably many people thought the same about the invention of the printing press, the steam engine, or the computer, but honestly I think this time could be different because I don't see what will be left for humans after AI (except for the 4 extremely intelligent engineers who take care of AI maintenance).
For junior IB, not sure.My real concern is if the reduction in junior long hours-over the next 7 years-caused by gpt would result in farther increased demand for IB jobs (fewer people would be extremely desperate to exit exclusively on account of burnout) would cheapen the cost of labour (due to demand/supply econs), thereby reducing junior IB comp over the next 6 years ( or at least ensure that the junior IB comp won't significantly rise to compete with long-term inflation ).I might be overthinking this though
I think we'd have much bigger problems than this subset of finance going away. In a worst case scenario millions of people across finance, law, accounting would lose their jobs permanently. What would be the implications of that?
Today you don’t need most of the functions of juniors in a way that couldn’t be accomplished by cheaper labor abroad. But you need a pipeline of folks who will get up to a level where they can take a client out to lunch.
Business will always be relationship based, and while juniors spend most of their time doing grunt work that can be automated, that isn’t what finance is at its core. Remember that investing / brokerage existed before computers
The way my bank churns through juniors by treating them like disposable wipes for MDs really makes me doubt this is true
For IB, I doubt that AI could fill relationship roles and also that its output will be 100% accurate, so I see no impact on the industry besides analysts ceasing to exist because their tasks will be performed by AI. Besides analysts, I think it's counterproductive to cut more roles so that's how IB would be organized:
- MD: Brings new businesses and cultivates existing relationships;
- VP: Learns from and assists MD, practices to bring new clients, and trains Associates;
- Associates: Learns from VPs and performs administrative tasks whenever needed to support MDs and VPs.
OP, great post. I'm based in Hong Kong so not everything I say here applies to an American IB scene. Just my 10 cents: (my 2 cents are free)
TLDR: high-level/management-level sales is something GPT cannot do. That is a core skill of an investment banker. Process management is not something GPT can do. That is another core skill of a banker. Social media content creation is something GPT can do, but at least now it doesn't know how to read people and create marketing materials customized for a particular audience.
------------------------------------------------------------------
For the last year or so, I have been deciding between IB and PE as my next move out of my shitty bank. No, I'm not at Citi.
I've done interviews at MM and LMM PE funds, and got a couple of offers. Recently got a verbal offer from a MM bank that needs further facilitation from both sides to make it a written offer.
I have some coding experience and some first-hand ChatGPT experience. Modeling aside, I think a lot of your PPT and Excel data analysis work can be automated with the help of ChatGPT. The thing is, GPT doesn't spit out the correct answer the first time, but when I tell it what's wrong the with the previous code, it gets better. After 30 minutes, it gave me some VBA code that now saves tons of hours for me on dumb PPT work.
Excel is terrible for data analysis. On my job, I always use SQL (pre-approved from IT, not a big issue) and export the files to Excel and pretend I got those numbers using Excel. However, SQL might be obsolete soon since you can use ChatGPT to get SQL queries since SQL is not that hard in nature.
Eventually, I've decided to pursue IB. I've been advising some small biz on their series A/B financing, debt restructuring (I'm not a restructuring banker), growth strategy, company valuation/modeling, etc., and my girlfriend says I'm doing pretty well as a sales guy. I'm only an Associate in a coverage group and I've sourced 2 DCM deals already for current bank, with the blessing of my MD.
Good luck to all of us !
Also want to debunk a myth that you absolutely cannot get into growth equity or buyout after you become an Associate/VP. Might be harder, but it's not true. Might be sampling bias, but I've seen a lot of MD/D-level ex-bankers establishing pretty successful MM PE funds with no prior PE experience.
Also based in Hong Kong and just wanted to say congrats on securing offers at this awful timing! Lots of laid off friends from BBs aren't landing much gigs
Thanks !
I do not come from a prestigious background, so probably way less picky than your BB friends haha. Nevertheless, I think I will be happier with the new role.
100% agree OP. AI will be different this time because AI is essentially automating away human intelligence. This is going to be the most important invention humans have ever created. Sam Altman has echoed that and so has Sundar Pichai in his interview with 60 minutes.
This is especially the case for white-collar jobs such as IB. I've been worrying a lot also ever since Microsoft released the video about Microsoft CoPilot. I'm not sure if you've seen it, but you should definitely take a look at the video. That program alone can easily automate away a significant portion of an Analyst's job once it gets developed a bit more when released to all enterprise customers.
I was depressed about it for the last month or so because I'm an incoming IB SA. Watching the video made me realize my dreams about financial success may not necessarily come to fruition.
After going through the stages of denial, the reality is that there's not much we can do about it, to be quite frank. It's a race against time for when AI becomes AGI or at the very least, smart enough to automate a significant portion of white-collar work. That alone would hike unemployment rates up to ~35-40% at the minimum with white collar middle class primarily being affected. The jobs that will take a lot longer to get automated away that are high skill include AI engineers and specialized surgeons. Even doctors to an extent can be replaced when considering diagnoses. Low-skill blue-collar work will also take a while to get automated away such as electrician and plumbing. Robotics doesn't seem to be improving as at fast of a pace as LLMs such as GPT. Manual dexterity is not as smooth as it is for humans at the moment.
Ray Kurzweil, a world-renown AI scientist, has said that this AI can be a really big positive for this world if we can integrate into ourselves through the use of brain implants. That seems to be the only way we can adapt as humans and maybe through that, we can create new jobs. Another than a possible star-trek like UBI utopia where no one ever has to work again and AI has made everything really cheap due to the cost of labor being near 0. We might also be able to crack biological immortality with AI nanobots and all sorts of other crazy possible positives with the use of AI. But there can also be a lot of horrific downsides as well which is why AI alignment is really important. Possible downsides include an out of control Artificial Super Intelligence that doesn't believe in the existence of humans or even an ASI used by evil people in this world to wreak havoc on other countries or people.
Overall, it gives me goosebumps to say this, but we are likely going to be alive to witness the greatest invention of humanity forever change humans. We likely can't even imagine how different our lives will be even 2-3 years out from now. 10 years from now is probably unimaginable for anyone. As we approach AGI, ASI, and Technological Singularity, life will dramatically change. No one knows what is going to happen in the long term so no point in stressing too hard about it. Stoicism can help with this. Stay invested in the stock market as well because when AI truly takes off, many industries are going to be affected by a significant increase in productivity and a decrease in human labor cost which lead to increases in margins, FCF, and FCF growth rates. Trying to go all-in one stock probably isn't a good idea other than for companies such as MSFT or NVIDIA probably. Index funds are likely a better bet to capture the broader impact of AI.
Also keep up to date with developments in the AI world. The first huge step of seeing automation of human intelligence will be when Microsoft CoPilot makes many white collar jobs obsolete. That's when AI is truly going to be all over the news, and that's when people will truly understand the impact of AI. Idk when it will officially be released but stay tuned until then and enjoy the ride I guess.
I'm an incoming IBSA too. Do you have any sort of 'backup plan' if this whole finance thing goes south? Ideally I'd at least get past my two years of banking, but no one can really say when and how much disruption is coming. I'd like to not stay unemployed lol, I don't trust the government to handle this at all correctly. I totally see economic collapse happening before UBI utopia.
Yeah so honestly, it's really hard to predict. Because I see this hitting Analysts in IB hardest. It's really hard to predict to what extent this would automate away a PE associate jobs and how quickly it can reach an intelligence level that it would be smart enough to automate the entire job.
Once AI progresses to Artificial General Intelligence (AGI), pretty much all white collar jobs will be automated including PE associates, IB VPs, etc. There's no clear consensus as to when that will occur, but a lot of experts are saying 2029ish at the latest. Others are saying that GPT 5 integrated with domain-specific GPTs such as Bloomberg GPT and Microsoft CoPilot would result in AGI and wreak havoc on entire white-collar industries. We are currently on GPT 4 and technological growth can often be exponential, so we could see AGI within the next two years.
So let's say hypothetically, GPT 5 is released in September 2024 and is integrated within a bank-specific or finance-specific domain such as BloombergGPT in addition to Microsoft CoPilot. GPT 5 would likely be much more advanced than our current GPT and so this would likely lead to the eradication of the IB analyst if it hadn't been once Microsoft CoPilot is released. Mass layoffs occur and unemployment rate is probably around 40-60%.
At that point, if I were fired and replaced by AI, I would have to find other work in finance if it does exist or possibly retrain (possibly try to become Dentist, Nurse, Surgeon??? that will take at least a few years longer to automate) 2) if no work exists or wages are driven so low for roles such as Nurses due to immense competition, it means the economy is so wrecked that we're on our way to total collapse Doomer type scenario with massive unrest if prices of food and necessities don't reach near 0 due to cost of human labor being near 0 with the necessity of UBI until we can integrate AI into ourselves to essentially become superhuman. Elon Musk's Nueralink is working on this and he just recently asked FDA for approval to test humans but was denied. So we'll see but very uncertain times ahead for humanity.
I think it's understandable that you have this fear as you have not worked on the actual job but I think it is unwarranted for quite few reasons:
1. Yes AI can do all the stuff that analysts do in future probably (make Excel models with sensitivities, PPT work, etc), but when these need to be explained to clients, what are you going to say? You are definitely not going to say it is done by Chat GPT as 1. that will destroy trust in your bank and 2. it will make you look incompetent. Finance is a very relationship focused business, even in the junior ranks. I know an investment bank lost a pitch because the client said the junior team was horrible, and we won it because we showed execution excellence in our junior team. Someone needs to input these requests from clients and deal with their ego, internal politics, shareholders etc.
2. Who is going to take responsibility if AI is doing it? Even if AI does all the work, someone needs to do the mundane work of double checking every. single. thing. as if they get fked over an AI, I'm sure the client will not be hesitant to change their financial advisor.
3. Confidentiality. There is a reason why banks are blocking all these AI related stuff. Are you really going to input confidential client information for other billions of people to use? That is just a lawsuit waiting to happen. Yea sure, maybe Chat GPT can make an offline version and sign a statement saying that non of the information will not be used, but as a bank that relies heavily on trust, would you really take that risk?
However advanced the AI is, any job that requires human interaction with high stakes (doctors, therapists, lawyers, bankers) require actual human confidence and trust because we never really actually know how AI is coming into specific conclusions. It does not matter if AI surgeon is the best there is, I still want a doctor and a nurse near by to make sure the AI is actually doing its job and not getting hacked by someone else.
Shortsighted
Great to see the technology capturing people’s imagination, but the banks and other old industries have something that will prevent this happening in the next 5 years.
It’s called regulation.
Even Microsoft’s handy new AI copilot for office products will be slowed down by it.
why?
A bank deals in pretty much all of the most seriously regulated non-physical things in the world - we have privacy of information (confidentiality), money laundering / terrorist financing, through to just your general market manipulation.
automated jobs have been hitting s&t for decades, everyone cries the death of jobs, but it never happens. Because ultimately the stakes are just too high to trust it to something you can’t throw in prison/punish.
Think of it this way, would you trust an AI robot to cut your hair or give you a close shave?
This means take up will be slower.
Sure you might have less analysts as workflows are automated away, but the industry won’t be gone overnight. All it means is you have higher quality analysts.
This is the true response. Even if there is an AI that can do everything that an analyst can do right now, it would be slow to integrate as there are confidentiality risks and trust issues with the AI. No client will pay a multi-million dollar deal fee if investment banks are going to use AI for their analysis. I would actually think that there will be premium for manual analysis (similar to handspreading comps rather than using CapIQ/FactSet data) because it is just more accurate and detailed.
Also certainly there are a lot of stakeholders to deal within a M&A/IPO process and I'm sure AI will be great at it :)
I largely agree with this, but one data point:
Daiwa Securities China has just announced adoption of ChatGPT for the whole company. It's good old IB.
Mate, I have friends in biglaw who aren't even worried at all even though ChatGPT 4 has the ability to pass the bar exam with (almost) flying colors
Just curious, has it passed CFA yet?
Unless governments want to have massive unrest, regulation is a MUST. Congress has almost always been slow to react but hopefully some framework gets put into place within the nest few years
You also forget how painfully slow the financial sector is with adapting new technologies. I’m sure there’s already better ways to do most of the work we do but we do it “because it has always been done this way”. I’m not worried at all, sure maybe it will help to get work done faster but in that case seniors will just ask for more work / outputs. That’s the thing with banking, there’s always more shit to do.
It is scary man, but I believe at one point the government will regulate it because the unemployment rate will be too high and they will have to do something.
You're forgetting one thing - at that point the clients will also be staffed by bots. This industry will just be bots pitching deals to other bots.
I think we live in the most interesting era and we are all very lucky to be born in the era of such invocations. I believe in AI with all my heart and all my portfolio is about AI now. I understand that it can happen like a dot com bubble. I've also focused on deepening my understanding of AI technologies. I enrolled in ai testing courses, which provided me with the knowledge to scrutinize AI projects more effectively and ensure that my investments are not just trendy but technically sound. This educational path not only boosts my investment strategy but also prepares me for the technological shifts we're likely to see in the future.
Ipsa reiciendis molestias facilis id voluptatem necessitatibus. Earum quae error aut doloribus laborum sunt. Aut nisi minima voluptatum. Atque sunt voluptatum voluptatem minus sunt. Magnam minima qui laudantium natus debitis rerum beatae. Ut maxime sit eaque mollitia magnam.
Veritatis error et impedit et. Aut vitae saepe consequuntur voluptas officiis. Numquam occaecati dolores optio mollitia enim quam quia. Optio voluptas velit eum fugiat tempora consequatur laboriosam. Ratione hic deleniti optio sunt voluptas. Alias quidem magni et impedit.
Architecto voluptatem est laudantium consequatur molestiae molestias officiis. Ipsam vitae velit illo sunt sit. Sit saepe porro consectetur illum. Voluptatum ipsam et ut minima. Doloribus quo quia voluptatem.
Corporis qui non consequuntur quas est impedit molestiae saepe. Omnis debitis autem in nihil blanditiis corrupti quo. Reiciendis optio itaque ut quia in. Exercitationem id omnis rerum est est ipsam omnis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Enim facilis est hic at cum aliquid. Dignissimos molestiae voluptatibus ea provident velit. Consequuntur aut iure officiis accusantium neque officia porro. Repudiandae quis et ad a.
Architecto commodi error maxime aut temporibus. Et quia qui fugiat neque et rerum enim.