The second characteristic acting to undercut AI is its performance. New reporting from the Wall Street Journal indicates that of the trading funds that use AI to manage portfolios, almost all of them are underperforming. That may not be headscratching news for advisors, but it might bust a myth or two some clients may cling to.
These days, artificial Intelligence is top of mind for almost any professional. Financial advisors are no exception. They have often had to justify how their work can’t be replaced by that of a robot. First, were robo-indexes. Then the algorithms. And now, artificial intelligence, specifically ChatGPT. But good news humans! AI makes for a terrible financial advisor. Here’s what you should know.
ChatGPT seems to be everywhere these days. Is it really new? For advisors, various forms of AI have been threatening to upend the status quo for advisors for years. First, there was robo-advisors, automated systems used in investing and wealth management that have potential to balance accounts and find opportunities for both high–net-worth and mass market customers. While they are useful for rebalancing and noting risk trends, most younger investors favored face-to-face interaction of working with an advisor for the financial planning aspect and are happy to leave the rebalancing to the robos. In fact, Millennials are twice as likely to use traditional advisors than robo-advisors.
AI can help with financial advising, especially when it comes to spotting trends. That’s incredibly useful when it comes to cybersecurity and assessing risk. But less so when it comes to managing investments. AI works by learning then learning from the learning. In that way, AI can be a partner that can help financial advisors respond more quickly to events. By shifting from a single shot strategy session to address trends and threats to a continuous learning one (by using AI), advisors can more readily spot potential events or problems and respond to them more quickly. Finally, over the last few years, AI has gotten better at helping with cybersecurity risk management. Investing and retirement planning involve massive amounts of data that flows at a pretty good pace. Individuals, even highly trained cybersecurity professionals on their own may not be able to identify unknown threats or mitigate potential risks. But AI can help those cybersecurity professionals detect, identify, and prevent risks.
Beyond cybersecurity, some folks think that AI can manage portfolios through the expansive learning process. Yet, two characteristics of AI undercut that premise. First, there is a cultural trend towards more detailed and in-depth analysis on the part of younger generations. The increase in the number of news-related and info-tainment based podcasts is a great example of how younger generations want to delve into complexity. So has the increase in the sales of books since the start of the pandemic.
The second characteristic acting to undercut AI is its performance. New reporting from the Wall Street Journal indicates that of the trading funds that use AI to manage portfolios, almost all of them are underperforming.[1] That may not be headscratching news for advisors, but it might bust a myth or two some clients may cling to.
Lastly, not everyone loves AI. Think of every story you’ve heard of robot interactions gone wrong. Amazon ordering is one area rife with these stories. Access to humans also overcomes the “Amazon oopsies.” Many shoppers on that e-Commerce site have tales of being sent either the wrong thing, or too much of the right thing. Usually those mistakes involve units, such as mistaking a package for a case. Ordering one fishing lure from Amazon might be just want you wanted, but receiving one case might be slightly more than the average fisherman can store. The fact that this is a common mistake on the e-Commerce site shows that the human touch is crucial. Having a human on the other end of a computer program to take note of unusual activity can prevent an oopsie. Knowing that there is a human on the other end of a computer can build trust in using that system among investors and others.
[1] https://www.wsj.com/finance/investing/ai-funds-are-missing-out-on-the-ai-stock-boom-45650843
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
get xpress proposal
