Americans have had access to generative AI technology like ChatGPT and Google Bard for less than a year, yet a good portion are willing to take financial advice from it.
A recent CFP Board survey found that 31% of investors felt comfortable implementing financial planning advice from AI without verifying it with another source.
That’s a significant percentage of investors who are confident AI will give them good financial advice. Still, before you hand your brokerage account decisions over to an AI bot, there are a few things you should consider.
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Investors are very open to AI financial advice
Even more surprising than nearly one-third of investors trusting AI for financial planning advice is that older generations appear to be more open to AI investment advice than younger ones.
The survey showed that 62% of investors aged 45 and older were “very satisfied” with getting financial advice from generative AI, compared to 38% of investors under 45. More than half of the respondents believe that AI is the future of financial planning, with 52% saying that both AI and social media will supplant financial planning advice from advisors in the next three to five years.
It’s worth pointing out some differences between generative AI financial planning and robo-advisors. The latest AI chatbots spit out financial information when users ask a question. For example, you may ask what percentage of stocks you should hold in retirement compared to bonds and then act on its advice.
In contrast, a robo-advisor uses algorithms to put your investment portfolio on autopilot. They’re typically implemented using age- and risk-tolerance-appropriate investments that focus on exchange-traded funds (ETFs) and mutual funds and are often offered as a portfolio choice from major online brokerage firms.
Should you trust generative AI’s financial advice?
While generative AI bots can certainly give correct answers, even when it comes to financial advice, it’s wise to be a little skeptical. Bots like ChatGPT are large language models (LLMs) that create content based on databases. But while it can access databases of correct information, it is also creating text that it thinks makes sense — but may not be true.
A recent Ernst & Young article noted, “Large language models (LLMs) can provide responses with high confidence even when the information is inaccurate or unverified.”
That’s why some people think that as generative AI progresses, financial experts may act as an editor or fact-checker in the financial advice process.
A recent report from Amazon Web Service said that financial planners may eventually shift their focus from providing information to investors to “checking the accuracy and completeness” of the answers provided by generative AI.
So, it may be best to treat financial advice you receive from generative AI the same way you do when an overconfident family member gives you a hot stock tip. Maybe it’s a good company to invest in, and perhaps it’s not. Either way, you should find a reliable source to vet the information with before making any life-changing financial decisions.
How to find a good financial advisor
If you’re not all-in on an AI financial advisor yet (and I don’t blame you if you aren’t), there are a few things you should consider when picking one of the human variety.
First, talk to your friends and family to see if they have any financial advisor recommendations. You don’t have to use their advisor just because they recommend them, but it could be a good place to start, especially if you’ve never had an advisor before.
Next, you should find out whether your prospective advisor is fiduciary or not. A fiduciary is legally bound to put your financial interest above theirs when making investment decisions.
While you can certainly find good financial advisors who aren’t fiduciaries, doing so will help ensure all financial decisions are always in your best interest.
Finally, come up with some questions to ask a potential financial advisor, including what their fees are, what types of clients they have, and what types of services they provide. Knowing what you want and finding out what an advisor offers will help you decide whether or not they are the right fit for you.
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