The AI revolution in financial advice: A reality check

Russell Hutchinson looks asks whether artificial intelligence (AI) is a threat or a help to financial advisers.

Tuesday, March 26th 2024, 10:36AM

by Russell Hutchinson

In an age where uninformed articles often sensationalise the impact of digital advice, there’s a common rhetoric centred around redundancy: "Will AI render financial advisers obsolete?"

Such fear-mongering ignores the nuanced reality of AI integration into our professional lives.

If your understanding of AI is painted with this broad brush of fear perhaps you may consider this piece an antidote, of sorts.

AI's ability to assist with mundane tasks is significant, often operating quietly in the background of our daily activities. Many of us utilise AI tools unwittingly.

The key lies in understanding when to engage with AI, trust its capabilities, and recognise its limitations.

AI, like any tool, has its flaws.

It is capable of producing impressively accurate information, but it can also falter, sometimes significantly.

One must be well-versed in their field to spot these "hallucinations."

For instance, when seeking examples of gamification in financial services, I discovered that most AI-generated links were imagined or irrelevant.

Issues with AI can also extend to attributing research or quoting literature, with a tendency towards confusing or misattributing information.

In one case, AI erroneously created a regulatory entity, likely conflating aspects of the UK's Financial Conduct Authority and New Zealand's Financial Markets Authority. Additionally, AI sometimes favours data prominent in its training materials over more relevant, current information.

Despite these drawbacks, AI’s utility remains high in certain contexts.

It excels at tasks such as checking work, reviewing drafts, suggesting edits, creating checklists, offering coding instructions, maximising app usage, proposing structural changes, and critiquing logic.

This diverse range of capabilities highlights AI's role as an aid, rather than a replacement, in financial advisory.

To maximise AI's potential, specificity in requests is key.

Reframing and revising prompts can yield more accurate results.

AI can be particularly adept at administrative assistance and providing guidance on semi-technical tasks.

However, when it comes to writing detailed, compliant financial advice, AI’s output tends to be generic.

Here, it often encourages consulting a human adviser. Indeed, in other sectors where excellent daily automations exist, such as activity, health, and diet, I have personally found that nothing beats seeing another human, because of the accountability it creates.

That’s my model for how AI and financial advice can work together: that AI in financial advice should be viewed as a complement to human expertise, not a competitor. Its strengths lie in routine task improvement, freeing up human advisers to focus on more complex, nuanced aspects of financial planning.

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