AI and financial advice

Nick Moules

There’s a scene in the 1985 classic film Back to the Future in which the protagonist, Marty McFly, stops his flying car to make a call from a phone box. It’s funny now, but the point is that life doesn’t necessarily evolve the way we think it is going to. Predictions about the future of technology rarely come true because it is difficult for most people to fathom what’s possible, as we don’t spend our lives thinking that way.

However, some other people do and (AI) is all over the news right now. It feels like a moment in time when sci-fi is meeting reality, with growing excitement around the potential for AI to help humans make better decisions, solve complex problems and automate dull and dreary tasks. And yet some prominent voices, including people involved in the creation of AI technology, have expressed concerns that AI may evolve, either independently or with the help of malevolent forces, to the point where we no longer control it. Could it decide, for example, that humans are a threat to its survival and take action to protect itself? Could it seek to intervene in a democratic election process to serve its own interests, to the point where it might be hard to know if an election result was clean?

What we do know from history, is that once new technology emerges, it’s very hard to put it back in the box. Recent decades have seen rogue states develop nuclear and inter-continental ballistic capabilities. We might safely assume that the far cheaper and simpler path to AI weaponry, could be much faster.

The point of this article, however, is not to make you cower behind your sofa at the thought of some faceless computer unleashing Armageddon, but to help us understand where change might impact and benefit you as clients and investors and us as financial planners.

Firstly, how might AI help Wren Sterling to provide a better service to you, our clients? Who better to ask, we thought, than everyone’s favourite AI, Chat GPT? It’s response, complete with American accent, naturally, was:

“AI can help financial advisors in a variety of ways, such as by providing them with tools to analyze and manage large amounts of data, automate routine tasks, and make more accurate predictions.

For example, AI can be used to analyze market trends, predict stock prices, and identify patterns in financial data that may indicate potential opportunities or risks. Additionally, AI can be used to create personalized investment portfolios for clients, based on their risk tolerance and financial goals.

AI can also help financial advisors by providing them with real-time information and alerts, allowing them to quickly respond to changes in the market. Overall, AI can help financial advisors to improve their efficiency, accuracy and can help them to provide better services to their clients.”

It makes sense but, in many ways, all this is done through existing technology. The difference could be that AI makes it faster, cheaper and more reliable, which will benefit all parties.

It could also open up financial advice to those with less wealth than traditional clients and still provide a personalised service, bridging the so-called “advice gap”.

What can’t it do?

At the moment, AI is not considered to be sentient. This means it cannot sense, feel or perceive the world around it in the same way a human being can.

We have been here before too. Robo advice was the big shiny new show in town about 8-10 years ago when the wider fintech boom was in full swing. Firms assumed that investors were primarily interested in superior returns and would welcome vastly reduced fees in return for a stripped-back service. That has proven to be a false dawn, at least among the generations that make up the vast majority of the world’s investors. The main reason behind this is because all the other aspects of running a business still had to be paid for and firms were banking on securing wealthy clients. In reality, interested parties only dipped their toes in with small amounts they could afford to lose.

As time has moved on, some robo advisors have become more successful and found their market (and in the case of Nutmeg, a wealthy backer) but dreams of claiming fifty per cent of global investments within ten years were a long way off the mark and profitability remains elusive.

The primary reason for this lack of take-up is trust.

Think about looking into the whites of your financial planner’s eyes as you explain your hopes and aspirations, how you want to set your children up on the housing ladder, or how you want to invest in your pension so you can retire early and live abroad. Think about the huge complexities involved in balancing all the nuances and dependencies and trade-offs to come up with a tailored plan that works for you. Think about the complexity of the market and the concern that every investor rightly has of getting it wrong and the confidence that comes from building a trusted relationship with someone who understands you, understands the market and knows what to do. Filling out an online form and then having some faceless algorithm spit out a solution to one of the most important decisions you will ever make in your life, just doesn’t quite cut it!

This doesn’t mean that as financial planners we’re going to kick back and luxuriate in the knowledge that AI isn’t yet sentient. What is more likely to happen, as we have seen in other aspects of life, is that expectations around service will increase, as we have seen with innovations like faster payments. Explaining to a client that releasing cash from investments can take days when we’re all used to getting an online banking payment instantly, is a difficult conversation to have sometimes.

AI is therefore likely to cause financial planners to raise their service game even further, especially in areas such as personalisation. Nobody wants a cookie-cutter service and AI has the potential to supercharge this. Working with technology to give clients clarity, confidence and control over their financial future is the sensible approach.

What about picking stocks? Could the days of the human stock picker or investment manager be limited?

Again, some of this isn’t new. First came the “quants”, or quantitative investors, who use data and algorithms to pick stocks and place short-term bets on which assets will rise and fall. Two Sigma, a quant fund in New York, has been experimenting with these techniques since its founding in 2001.

There are undoubtedly aspects of investment management that can be enhanced by AI, such as data management and predictive analytics but human investment managers exist because there is still a role for experience and insight to play here.

Consider the Russian invasion of Ukraine, which has been one of the biggest factors in stock performance over the last year. Some investment managers would have guessed that Putin was bluffing when he denied plans to invade Ukraine and made trading decisions then, stealing a march over others who took him at his word.

And AI itself as an investment? AI as a stock class is likely to dominate markets in coming years as the world eyes a new opportunity to make money.

Nvidia is a manufacturer that has experienced high demand for its chips designed specifically for AI servers. Its stock has risen 164 per cent in 2023. It is currently valued just shy of $1 trillion (Price as of June 2, 2023, 4:00 p.m. ET).

Others will follow suit and investors will try to pick the winners and losers, just like every other stock. It could be the equivalent of 2023’s cryptocurrency explosion when a plethora of cryptocurrencies appeared but differentiating between them was difficult. The major difference here is, that there are real-world uses for AI in the future of our services, healthcare, in fact anywhere you look.

It might not happen straight away. There will be winning stocks and losing stocks and probably a bubble being burst at some stage, but the path to artificial intelligence becoming a major part of our daily lives has begun.

Nick Moules
About the Author

Nick has been in charge of Wren Sterling's marketing since 2016. He is a Chartered Institute of Marketing-qualified marketer with experience in financial services and start-up marketing, as well as a background in public relations. Nick is Wren Sterling's media contact.