5 reasons why artificial intelligence won’t replace financial advice

You may well have seen a lot of publicity recently about the remarkable advances in artificial intelligence (AI) and how it’s becoming prevalent in so many aspects of your day-to-day life.

One article that caught my eye was a report in the New York Times that listed no less than 35 ways people are now using AI, from planning meals and coding websites to writing book reviews.

Given all this publicity, and the underlying implication that the rise of AI is somehow inexorable, it’s inevitable that you’ll start to think about how AI could become involved in your life and, in particular, your place of work.

It certainly gave me pause for thought. So, discover some important reasons why, to my mind, AI won’t be able to replicate the services provided by a financial planner.

1. Robo-advice only works at a very basic level

A recent Sunday Times article went a long way to revealing the limitations in AI when it comes to giving financial advice.

Asked a series of questions that advisers are posed on a regular basis, an AI chatbot was able to give factual information that was generally accurate, but struggled when more specific recommendations were required.

“Robo-advice” can provide financial planning services through automated algorithms with little or no human intervention. Indeed, some providers have started using robo-advice in interactions with their clients.

They start by gathering information from you through a detailed online survey and then automatically recommend financial planning solutions based on that data.

However, with no human intervention, or acceptance that often answers to questions won’t easily fit into a simple binary answer, you’ll find that such advice can only really be complementary to the advice you’ll get from an experienced adviser.

2. Robust advice comes down to personal choice and emotional engagement

A lot of the financial advice process is all about personal circumstances and your own aspirations and preferences.

So much comes down to nuanced choices rather than simple “yes or no” answers to a series of questions. This means that key parts of your financial plan and ongoing advice require in-depth discussion and human intervention, rather than the output from a sophisticated computer programme.

Additionally, there’s often an emotional side to managing your money. Although science-fiction films have toyed with the idea of computers adopting human emotions – probably most famously in 2001: A Space Odyssey – it’s highly unlikely that AI will ever be able to replicate the thought-processes that go into financial decision-making.

3. The adviser/client relationship develops over time

Putting together an initial plan is one thing, but effective advice emanates from an ongoing relationship.

When I’m working with clients, I get to know what drives and motivates you, and what your fears and hopes are for your future. Furthermore, I’ll look to develop our relationship as time goes on and your circumstances and outlook change.

Your relationship with your financial adviser should be based on mutual understanding and trust. You’ll struggle to develop such a relationship with an AI programme.

All financial decisions will have context. An understanding of that is essential to ensure those decisions are correct. The alternative is an AI system making recommendations that are erroneous and that could cost you money.

4. Artificial intelligence output assumes rational human behaviour

With the best will in the world, none of us are perfect and can’t always be expected to behave as an AI chatbot would anticipate.

Based on that, your goals need to be realistic. AI will assume you always behave perfectly rationally when it comes to managing your money. But in my experience, such perfection is rare.

For example, it’s common to underestimate your spending and make some financial decisions on impulse rather than considered judgement. There may well also be unforeseen events that you’ll have to react to, and your reactions may not always match the assumption that an AI system will share.

There has to be an element of elasticity written into every plan and, to my mind, an AI system would struggle to take this into account.

5. Even some simple transactions can have layers of complexity

As you’ve read, some providers are already using robo-advice to recommend simple financial transactions that can be carried out based on a series of binary answers.

But even some transactions that appear straightforward can have layers of complexity based on your own individual circumstances and unknown variables.

Effective advice is dependent on the accuracy of ongoing information, which needs to be continually updated and reacted to accordingly.

That’s why you should review your financial plans annually, as well as in the light of any material changes to your personal circumstances, such as a change in your employment or the birth of children.

Then there are external events over which you have no control. For example, how will you manage your investments in the event of a sudden market downturn?

It’s worth bearing in mind that the extent of some financial crashes have been accentuated by investment algorithms automatically selling stock when it reaches a certain price.

In a falling market, with many investors panicking and selling stock, the best thing is often to make a conscious to do nothing, something an AI system cannot be guaranteed to do.

Get in touch

If you’d like to know more about managing planning your financial future, then please get in touch.

You can call me on 07769 156 250.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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