Introducing an Ethical Decision Framework to Guide Responsible AI in Investment Management

FA Institute, the global association of investment professionals, has released new research and an accompanying ethical decision framework to motivate the evolution of ethical practices in the development of artificial intelligence (AI) technologies in investment management.

The new research, Ethics and Artificial Intelligence in Investment Management, a Framework for Professionals, recognizes the spectrum of issues brought about by AI tools and big data in investing, and sets out questions for professionals and investment teams to consider when working with AI technologies at each step of the AI workflow. The paper combines fundamental ethical principles with the applicability of relevant professional standards as set out in the CFA Institute Code of Ethics and Standards of Professional Conduct to offer a decision framework to guide the development of responsible AI applications in investment management.

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The research also identifies organization-level requisites for AI to be successfully used in a variety of applications that include investment analysis, portfolio management, risk management, trading, automated advice, and client onboarding.

Rhodri Preece, CFA, Senior Head, Research, CFA Institute comments:

“AI adoption offers significant potential benefits, yet also entails several risks. 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. The framework aims to support professionals in the ethical design, development, and deployment of AI tools.”

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Key Takeaways:

• Investment organizations must establish a culture conducive to client-centric AI innovation, and incorporate a robust risk management and governance framework that includes regular model testing. A talent development programme to ensure the acquisition of appropriate knowledge, skills, and abilities within investment teams can give firms an edge.
• Ethical considerations regarding the use of AI in investment management include the integrity of data, the accuracy and validity of models, transparency and interpretability of algorithms, and accountability structures.
• AI models should avoid bias and excessive complexity or opacity so that they can be interpreted and understood by all relevant stakeholders. They should yield fair and accurate outcomes. Interpretability methods play an important role supporting model transparency.
• Regular model testing and review should be part of the governance framework surrounding the use of AI to ensure that applications perform and evolve as expected.
• Model development and evaluation should consider the existence or emergence of biases in data or in the way that models learn from features, the interpretability of the contribution of features to the outcome, the fairness and accuracy of outcomes, and the ongoing suitability of models to client needs.
• An ethical decision framework sets out the relevant questions professionals and investment teams should consider when working with AI technologies at each step of the AI workflow.

Rhodri Preece, CFA, continues:

“Instilling an ethical decision framework in AI-driven investment processes is critical to ensure applications serve the best interests of clients. Given the complexity of AI projects, senior leadership must establish a strategic vision and ethical culture for AI development within the organization. While the use of AI in investment management is still relatively formative, it is appropriate that we examine the ethical aspects of AI implementation to guide future developments responsibly. We offer our research and framework as guidance for investment professionals to advance the industry’s efforts to incorporate AI responsibly.”

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