MarketCounsel on How Smart Advisors Approach AI Integration

Brian Hamburger, President and CEO of MarketCounsel, offered insights into the evolving world of legal counsel in a budding era of AI proliferation at Schwab IMPACT 2025 with ETF.com’s Dave Nadig. From understanding regulatory risk and rules to the impacts of increasing M&A activity, Hamburger provided on-the-ground intel for advisors of all types. The following is a transcript of their conversation.

Transcript

Nadig: Brian Hamburger, MarketCounsel, I'm so glad to get a few minutes with you. Look, let's cut to the chase with advisors. Mostly what they want to know is what are they going to get in trouble for, right? And part of the reason I believe people hire you and your firm is to help them figure that out and to not get in trouble for it. So what is front and center right now? There's a lot of noise, like Washington, what's a rule, what's not a rule, what's enforced, what's not? Let's cut through that. What are you actually going to get in trouble for and what should you be watching out for as an advisor?

Hamburger: The smart ones come to us and ask the questions of, “Hey, what can we do to really assess our risk and take on acceptable risks so that we can pursue the opportunities in the best possible way?”

Nadig: And you're not talking about market risk, you're talking about business risk, right?

Hamburger: I mean, risk is risk, but of course market risk is one of them, especially when you're dealing with a business transaction. But that's what the smart ones do. You said that all of my clients come to me asking that question, but they don't. Many of them come after already assuming that risk and after already having found some difficulty. And that's a way more expensive way to deal with it. 

So you're right, but the smart ones do come in and they're asking the question. They're saying, “Hey, we're bringing in a new business partner, right? We're thinking about taking on new capital partner, we're thinking about taking on financing, we want to engage in this new technology, right? We want to start a new marketing campaign, right?” So they're asking the question. Our job is to clarify the objective, you know, what are you trying to accomplish, what are the requirements, and then how do we go about it? 

And that can include talking about risk, it can include talking about legal risk, regulatory compliance issues, could be talking about, “How do we mitigate these issues along the way?” And that's what the smart advisors want to know. They want, most executives in the wealth management space, want a really clear matrix, a decision-making matrix. They want to say, “You tell me what I'm operating with, what are my chances of problem if I do this versus this?” 

And they then can decide, “Are we willing to take that additional risk, are we willing to engage in that solicitation, even though the contract may preclude it, what are the potential ramifications?” It's a business decision. And at the end of the day, if you can boil everything down to a business decision for an entrepreneur, then you're providing good utility as their lawyer.

"Where I think Businesses Gain Is on the Fringe"

Nadig: Is that true even when we start talking about the things we read in the papers about this industry, about marketing and communications and record-keeping errors and things like that? Even there you approach that as a let's put this in a business decision context?

Hamburger: Yeah, I mean there's nothing's excluded, right? So the way I look at it is that bad advisors ignore the rules. Good advisors read something in a publication and they take a wide swath on that and they leave a margin and they just stay away from what would be problematic, whether it's regulatory issue or legal issue. 

Great advisors are engaging counsel and saying, “How do we do this? Like, what's our strategy?” Because what they want to do, and where I think businesses gain, is on the fringe. They want to know what is the rule, right? Or what is the law? Or you know, how are courts enforcing these provisions? And they're actually then making business decisions that take them right up until it's going to be a problem. And that's where firms are winning. 

That's why you're seeing firms coming out with really innovative marketing campaigns or their use of AI is running circles around others. Why? Because they're asking the questions and saying, “Okay, I understand that the regulators may have been skeptical under a prior administration on AI.” So many firms just sought to avoid it. But the great ones said, “Let's make sure we're doing this the right way. Let's be thoughtful about it.”

Nadig: Let's dig in there for a sec if you don't mind. Like AI, obviously, I mean every booth here's probably got a label on it for AI. You know, it is something that advisors ask me about, how other advisors are using AI, “Can I, am I allowed to use it for this, can I not use it for that?” Are there, clear seems like the wrong word, but are there good guidelines for advisor use of AI?

Hamburger: Absolutely.

Nadig: So what are those and where can people find them, other than hiring you?

Hamburger: Well, and the problem is you can't find them in one place, right? Because the use of AI, due to the nature of AI and its use of large language models and the data that you're putting into it and what you're getting out of it and the various sources, it's always it depends, right? So every AI endeavor we're looking at is, “Well what information are we feeding into it? What controls do we have over that information in terms of where that's going?” Typically, you know, we're working on like enterprise class of AI where it's you know, there's containment.

Nadig: There's constraints.

Hamburger: Right. But then it's well what sources, right? Can't just be out in the wild, right? So when the regulators are skeptical about AI, they're generally skeptical about allowing AI to be used in a way that a human couldn't otherwise use that information. You can't deploy a machine or a robot to do something you couldn't otherwise do and say, “Oh it wasn't me, it was the technology,” right? 

So the reason why it's so complicated is number one it's new. You know, anytime we have new technology, it's disruptive, it's unprecedented, we've heard these adjectives before. And that's meant to ward people off, right? And it does, right? I mean it intimidates people. But when you punch through that, it's like okay well we've seen this before, we've seen technology innovations. We've started to put data up in the cloud not too long ago and that was like a brand new frontier and people are like, “Are you able to do that? How do you reconcile data in the cloud with books and record-keeping rules that are 60 years old?” Right? 

Well, you gotta go to the principles behind it. And so for AI the difficulty is you’ve got privacy, you've got data security, you've got all sorts of all the sources of information essentially have to be vetted in a way so that if you're utilizing statistics and numbers, you can track it back, right? There's accountability. And I think people who are harnessing AI aren't afraid of that. They understand that, “Hey, we're not using AI in a retail sense, we're using AI in a professional sense.”

The Legal Precedent for AI in Business is Broad

Nadig: Is that really the gap? Because so much of the AI noise is really about retail use. I mean we talk about ChatGPT all the time.

Hamburger: Chatbot, it's our first entry.

Nadig: That's a big difference between what we're like there's a bunch of vendors out here on the floor selling solutions that I'm sure you would say no these guys have checked the boxes, they're doing it right. That's part of why they have businesses, is selling that pre-packaged compliance approved way of doing things. Is that really the best answer for advisors to go with a partner to do the hard work?

Hamburger: Not necessarily. No, because I never want to splash cold water on entrepreneurial pursuits, right? So yeah, you know, there's always going to be products and solutions out there, but they're all pretty new, right? And if an advisor thinks they can build something better, then let's have at it, right? Let's get out a whiteboard or typically a digital one and like let's sketch this out. But again, what are the objectives, you know, what are the criteria, what are the conditions, and then what are the constraints that we have to work under.

Nadig: How much of this has been tested? Like how much have there been cases adjudicated of, “Well you shouldn't have put that in the AI because now that's you know, not private anymore, or you know, you relied on hallucinations for something you went to your client with and that's on you?” Or is it too new?

Hamburger: You can't just look as narrow as AI, right? You can't just look as well did someone put data in AI that ended up in the wrong hands. You could just look at have we had data security breaches? Of course, right? We've had a ton of data security breaches, some of them purposeful. That's the history that we're going to we're going to pull from, right? 

We're not looking for this specific occasion where this has happened before. What we're looking for is what's highly correlated to that. You know, AI is nice and it's sleek and it's sexy and it's fun. But the truth is it's comprised of a whole bunch of stuff that we've been working with for quite a long time. And so it's not totally unfamiliar.

Why AI Doesn't Replace Human Expertise 

Nadig: Let me turn that around, is it changing how you do your business? There's been a lot of discussion about AI in the legal community, pro and con, lots of discussion about you know, walled gardens and creating enough confinement. Where do you guys find yourselves on that as a firm?

Hamburger: It hasn't actually changed a lot. We've, there's been some interesting new competitive upstarts to different either legal solutions or regulatory compliance solutions that rely upon AI and we kind of welcome them. Because it is a low-cost shortcut to what a lot of people are trying to accomplish. I say this partially tongue-in-cheek, it often you know, it all depends upon the inputs and the prompts, right? In terms of what you get out. 

I haven't yet found anything that can rival an attorney who's honed their craft over 20 to 25 years at being able to pick apart the issues and ask the questions. Because it's not the output, right? The output is pretty easily driven by technology. It's asking the questions, right? When you go to your doctor, they say “How you feel?” “Yeah, feeling good.” Well they don't stop there.

Nadig: They chase you over.

Brian Hamburger: Right. They ask you 15 different ways, like, “How's that elbow doing?” “Oh, you know, now that you mention it…,” right? It's because a professional knows that they need to get the right inputs in order to form their decision. And there's the niceties, but then there's alright let's dig in here. “Most advisors who have presented with what you've just told me have also done this and taken a performance fee.” “Oh yeah, we do that too.” 

“Really, because you didn't mention that. We asked you all the different fees you take.” “Well, I didn't think about it.” And so it is very similar to a visit with a medical professional, which is you can go to urgent care, point here, sew it up, and you're on your way. Or you can go to a consultative medical specialist and really feel that like, ”Wow I'm leaving here feeling way more confident about the outcome.” 

And at the end of the day it's not you know, our advisor's going to get into a business, it's how do they support it when it's under stress. So if there's a market downturn, if there is any type of legal threat, if there's a regulatory threat, will the initiative hold up to that scrutiny? And we only really know that once it's tested. But you can't stress test early on. So to me, you know, we can't rely upon AI to do that work. Not yet, at least.

The Legal Concerns Advisors Consistently Miss 

Nadig: Got it. Before I let you go, is there anything that you're hearing from your clients that is surprising you right now? Are they asking questions that you're like okay I guess we have to figure that kind of stuff out because things are moving so fast. My sense that I have a handle on that is impossible.

Brian Hamburger: Yeah, no, it's interesting. I like to say that almost nothing can surprise me anymore. But then something does. I'm surprised generally at how advisors who are very, very keen on understanding conflicts of interest, how little they often think through conflicts when it comes to them. It's almost like they immediately jump to, “But I have the best of intentions and I would never do that to my client so it's not a conflict for me.” But that doesn't make it not a conflict of interest. So I think I'm surprised at how you need that objectivity, you need that third party to look at you and say, “But you can do that.” And that's what the problem is. That's what we have to solve for. Because advisors should know that. 

Similarly, you know, advisors are trained at assessing the value of a company. They do that with securities all the time. “Do we buy this security, do we sell it, do we hold it?” For their own business, surprisingly that logic just flies out the door, right? And they have the skills. And so you have to remind them like, “You know that you own 80 percent of this company's stock, it just happens to be your company, right? So now we have to use those same traditional methods that you know really well to value your position and then we can make a determination on this business transaction.”

Nadig: Is that a big part of your business helping advisors through that business life cycle? Because we've just seen just an unbelievable rash of acquisitions and mergers and you know, inorganic growth from you know, players from Dynasty to Ritholtz to you name it, everybody's buying somebody. Is that a big part of what you guys do?

Hamburger: I mean it's a huge component, it's the fastest growing component and it's the second largest practice group that we have. You know, our business is pretty well split between disputes, led by employment transition work or recruiting transition work, business transactions at all levels, whether that's successions or financing or eventual exit and M&A, to regulatory issues. And you know, that's what keeps us on our toes is the interrelationship between those things. 

Because when we're looking at a business transaction it's not without employment considerations, right? It's not without regulatory considerations, what's the most efficient path to do this given the regulatory constraints. And so I think that's what we do particularly well, marry those two highly specialized areas of the law specifically for wealth management firms.

Nadig: Great. Thanks so much Brian. Appreciate the time.

Hamburger: Pleasure.

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