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AI in financial advising – Can I use AI as a financial advisor? Thumbnail

AI in financial advising – Can I use AI as a financial advisor?

When generative AI – namely ChatGPT – made its debut last year, professionals of all stripes got a little nervous about their job security. 

Suddenly, computers were writing blog posts, code, novels, and more. Seemingly overnight, AI was poised to take over every desktop profession – even financial advising.

Truth be told, a recent poll by the Certified Financial Planner Board (CFP) found that nearly 1 in 3 investors (31%) said they felt comfortable taking financial planning advice from generative AI (like Chat GPT) without running it by a financial planner. That’s even higher than those comfortable with taking financial advice from a real human on social media (26%).

As a result, we’ve received many questions from clients about whether this new technology can deliver financial planning advice as good as – or even better than – humans.

And like most answers in life, there are pros and cons to each.

Financial robo-advisors: Fintech’s debut in the late aughts

Non-human financial advising has been around for a while. In fact, the first robo-advisor is nearly old enough to drive.

During the 2008 financial crisis, robo-advisors entered the world of financial advising. These largely non-AI-powered algorithms automated portfolio strategies based on some version of modern portfolio theory (MPT) to build indexed portfolios. These algorithms then continuously scanned and optimized portfolios which worked – and still work – well for some people.

However, though robo-advisors are cost-effective, accessible, and offer decent portfolio diversification, these algorithms lack flexibility, personalization, and a human understanding of the person behind the investment.

And, despite the most recent advancements in AI, this lack of empathy remains an issue because it has major implications for the type of financial advice it offers users.

AI doesn’t consider what’s best for you

If a young graduate fresh out of high school prompts ChatGPT with the question, “What is the best way to save money?”, she’ll likely receive similar answers to that of a human financial advisor (i.e.: create a budget, set financial goals, invest smart, etc.).

The problem starts to surface when a middle-aged business owner, with three kids and a spouse asks ChatGPT the same question and receives the same answers. 

It’s not that AI’s necessarily giving wrong answers, it just isn’t aware of context. And in the world of financial advice, context is king. 

Generative AI’s context failure can be broken into two categories:

  1. You don’t know what you don’t know 
  2. AI doesn’t know you

1. You don’t know what you don’t know 

Generative AI answers the prompts you give it, nothing more, nothing less. That means you need to include the right information within your prompt to receive the best possible output. However, because you’re not a financial advisor, you likely don’t know the right questions to ask, or the specific context to include in your prompt.

It’s a little bit like trying to build a house with no background in construction. Shopping for supplies is one step. But how do you know what supplies you need and why you need them? Because you’re not an expert in this area, deciding what’s best becomes a lot more difficult.

That’s where a human financial advisor – with their expert knowledge and perspective – can help you ask the right questions and provide the right context that will result in better, more specific financial planning advice.

2. AI doesn’t know you

Unlike a human advisor, generative AI won’t have a conversation with you – that’s because it’s not trying to get to know you or understand your needs. It won’t ask follow-up questions, it won’t ask about your top financial goals for the future. With its generalized answers, generative AI won’t give you diverse financial planning advice to serve your specific needs.

A good financial advisor seeks to know you, your family, your goals and dreams for the future – the unique tapestry of your life. By understanding your motivations and possible limitations, you can get tailored financial strategies that fit your lifestyle – not general guidance that may or may not apply to your situation.

Generative AI’s advantage in financial planning

While context is AI’s greatest downfall, it does have very real advantages. 

Human advisors are limited. We have kids, extracurricular activities and bedtimes. Each of these takes our time and attention, so we can’t stay plugged into the market or move money around every single second of the day.

AI, however, can. Not only can AI constantly monitor investments, but it can also draw from its massive database of information and make split-second outputs. This makes generative AI an incredibly powerful tool. But, like any tool, it takes a well-trained professional to make the most of it.

Human + AI-powered financial planning

Both human financial advice and generative AI advice can be powerful aids in accumulating wealth. So the question always comes back to which one should you use?

The truth is, it’s not an either/or decision. As financial advisors, we’ve always taken advantage of the latest technology to help you get the most out of your money and help you achieve your dreams of financial freedom.

That’s why we’re excited about AI’s capabilities – not because AI will replace the value of human financial advising, but because in the hands of an expert, AI can be a powerful tool to help us do our jobs better.

At Bayview Financial, we’re combining the power of generative AI with humans who seek to understand you, your family, and your financial goals – all so we can find the best financial strategy for you.