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Ethical considerations should feature more prominently in the use of artificial intelligence (AI) in the investment management world, according to a recently published paper.

The research from the CFA Institute, ‘Ethics and Artificial Intelligence in Investment Management, a Framework for Professionals’, has been prompted by the growing use of AI in the wealth and asset management space across not just the investment side but risk management, trading and automated advice.

The concern is that any algorithms used for asset allocation, stock picking or any other function has end-investors best interests at heart and are transparent and explainable.

The paper calls for firms to develop a “culture conducive to client-centric AI innovation”, to ensure the integrity of any data used, and to avoid bias, excessive complexity and opacity.

The report also calls for AI models to be regularly tested and reviewed as part of any government framework that may be introduced for the use of AI technology.

Ethical AI has become an important topic for lawmakers and regulators in recent years. In 2019, the EU produced guidelines on the ethics in AI and then followed this up in April 2021 with the first draft of its AI Regulation.

“AI adoption offers significant potential benefits, yet also entails several risks,” said Rhodri Preece, senior head, research at the CFA Institute. “The expansion of data sources and availability of AI tools to harness big data can improve investment decision making but can also introduce more complexity in investing.

“With ever more data sources and more complex decision-making algorithms, the application of AI must prompt firms and professionals to re-examine the span of ethical considerations in investing,” added Preece. “The framework aims to support professionals in the ethical design, development, and deployment of AI tools.”

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