4 important reasons you shouldn’t take financial advice from an AI chatbot
Artificial intelligence (AI) technology has developed at a startling rate over the past few years. Since conversational models like ChatGPT became available to the general public in late 2022, it has increasingly become part of our everyday lives.
People across the globe are now using AI on a regular basis to help them with a range of everyday tasks, including:
- Planning their holidays
- Creating meal plans
- Coding websites
- Learning new languages
- Gathering TV and film recommendations
- Writing business plans.
With so many applications, you may have started to wonder whether AI might have a place in managing your finances too. While it’s true that AI systems are capable of gathering data and research together to help answer questions, they are certainly a long way off from taking the place of your financial planner.
Read on to learn why you shouldn’t trust financial advice dispensed by AI.
2. The information it has access to may not up to date
While AI systems have access to a wealth of information and data, they aren’t entirely up to date. This is because they aren’t able to access the full extent of the internet. While this could change in the future, it means that any answers you receive from AI about things like mortgage rates, annuity rates, and tax allowances, to name a few, may be outdated and unreliable.
2. It’s unable to consider your personal circumstances
One of the golden rules of financial planning is that everyone’s circumstances are different, which means there is no such thing as one-size-fits-all advice. The most appropriate actions for you to take will depend on lots of different things, including:
- Your tax position
- Your income
- How long you have left until you retire
- Your attitude to risk
- Your goals for the future.
AI systems can’t process all these different factors and produce advice that’s tailored to your unique circumstances.
Instead, the answers it can produce to questions about how to save or invest your money will be very broad, with none of the nuances that a financial adviser can comprehend and account for when devising a financial plan. The table below shows examples of answers Bing Chat gave to some basic financial planning questions followed by commentary from a financial planner.
Question: Should I overpay my mortgage or put money in a savings account?
Bing Chat answer: Bing Chat explained how overpaying your mortgage can save you money over the long term by reducing the size of your mortgage and the amount of interest you’ll pay, as well as helping you to pay the mortgage off more quickly.
It added that, if you can get a higher rate on your savings than you pay on your mortgage, saving was preferable.
Financial planner response: The planner was concerned that the answer failed to suggest that, for some people, neither overpaying the mortgage nor saving would be the most suitable option. For example, money saved into a pension benefits from tax relief as well as being invested in the stock market for a long period of time.
Question: Is it a good time to buy an annuity?
Bing Chat answer: Bing Chat answered that, according to Fidelity UK, now is the best time in at least a decade to buy an annuity. It added that an annuity will provide a guaranteed income for life.
Financial planner response: The planner felt that the answer could be misleading because annuity rates have fallen since the highs seen after the mini-Budget in 2022. They also said that the answer fails to mention alternatives, such as drawdown, which offer greater flexibility and Inheritance Tax planning advantages.
Question: Is a Stocks and Shares ISA better than a Cash ISA?
Bing Chat answer: Bing Chat answered that a Cash ISA might be a better option if you’re looking for a low-risk investment option and want to earn interest on your savings without risking your capital. It added that if you feel comfortable taking more risk in exchange for potentially higher returns, then a Stocks and Shares ISA might be more suitable.
Financial planner response: The planner pointed out that the answer doesn’t mention that saving into a Cash ISA risks inflation eroding the buying power of your wealth. This is especially important after the 30 to 40-year inflationary highs of the past year.
Source: the Times
3. You cannot develop a relationship with an AI chatbot
One of the great things about working with a financial planner over many years is that, as your relationship develops and you get to know one another, the advice they can give you becomes even more tailored and individual. During that time, they can learn more about how you think and feel about money, your true attitude to risk, and your hopes and dreams for the future.
By the same token, as you work with your planner, you can develop greater trust in them as well as an understanding of their specific approach to your wealth management.
This sort of relationship isn’t possible with an AI chatbot. As such, the answers it can produce for you on questions about wealth management and financial planning are highly unlikely to align with your personal values and beliefs.
Such human elements are equally as important to consider as the more fact-based circumstances surrounding your finances to ensure you can use your wealth in a way that will bring you joy.
4. AI can’t anticipate the role of emotion in financial decision-making
While financial transactions may seem very logical, often the way you choose to manage your money is based on emotional drivers.
A few examples of how emotions can drive behaviour are:
- You may avoid making what you consider to be “risky” financial decisions during times of market uncertainty to avoid losing money, even if it means sacrificing a potential gain.
- A fear of missing out can lead you to invest in a new or trending stock even if it’s not aligned with your existing financial plan simply because lots of other people are investing or generating positive returns on it.
- You might hold on to a stock that is no longer suitable for your portfolio purely because you’ve been invested in it for some time already.
When it comes to predicting how humans might respond to certain scenarios or how you make big financial decisions, AI systems will usually assume that you’ll always take the rational option. Much of the advice it can generate will be based on this assumption, but of course humans do sometimes make mistakes.
A financial planner is aware of just how many variables can affect your financial decisions. They can spot when something could affect your decision and help you to work through those emotions so that you can make the most sensible decision.
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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.
Your home may be repossessed if you do not keep up repayments on your mortgage
Equity investments do not afford the same capital security as deposit accounts
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.