Advisers beware: AI is to robo-advice what the T-800 is to T-3000 or worse
There is a new threat on the financial advice horizon that could make the human versus robo-advice battle of the late 2010s seem like a cakewalk. In fact, the perfection of natural language programming by artificial intelligence (AI) could mean that your next war will be labelled human versus AI… From this writer’s perspective, it will be a bit like the T-800 from the first Terminator movie going up against the almost invincible T-3000 from the fifth film in the series. Things get crazier in the sixth film, which features a terminator labelled Rev-9.
Steamrollering through 2023
Of course, given that we are already steamrolling through 2023, few of you will take a human’s say so on such important matters. Allow me, therefore, to introduce some of the sentiment shared by the pinnacle (for now) of 21st Century AI, Chat GPT, which describes itself as “a large language model developed by Open AI that can generate human-like text based on a given prompt”. To begin, you should know that Chat GPT is not the opponent that you will eventually face off against. It is a beta release that is still in development and is but a shadow of the commercial AIs that will eventually be built, or should we say conceived, and unleashed on the human population.
My interrogation of Chat GPT started with a scene-setter. “Around 2015, financial intermediaries were very concerned about the impact of robo-advice on their livelihoods,” I said, offering some context. I then asked: “What is robo-advice and why were financial intermediaries so concerned?” Chat GPT leapt into action, offering the following response within three seconds. “Robo-advice refers to the use of technology to provide automated, algorithm-driven financial advice with little to no human interaction,” it wrote, answering the definition part of the query. And I must say, this definition is spot on. I loved the use of ‘automated’ and ‘algorithm-driven’ in the description because they confirm the human link in the design of the robo-advice automation.
Explaining the threat from automation
The threat posed to financial intermediaries by automated advice was nicely explained too. “Financial intermediaries, such as financial advisers and wealth managers, were concerned about the impact of robo-advice on their livelihoods because it had the potential to disrupt their traditional business model by providing lower-cost advice to consumers; additionally, robo-advisers are able to process large amounts of data and make investment decisions quickly, which may make them more efficient and effective than human advisers in some cases,” wrote Chat GPT. The AI thus correctly summarised the advice community’s main concerns around robo-advice as loss of income and the potential for loss of jobs for humans working in advisory roles.
Our next question, repeated here to illustrate the level of competence this AI has already achieved in back-and-forth discussion, was: robo-advice seems to be closer to automation than artificial intelligence, agree or disagree; and can you expand on the difference between automation and AI in the context of financial advice? Chat GPT agreed, and then explained that automation refers to the use of technology to perform tasks that were previously done by humans. “In the case of robo-advice, this [automation] includes tasks such as portfolio management, asset allocation and rebalancing [that are all] performed according to pre-defined rules and algorithms, and do not involve any form of decision-making or learning; artificial intelligence, on the other hand, refers to the simulation of human intelligence in machines,” wrote Chat GPT.
AI advisers will have a clear edge over robo-advisers
And then, remarkably, the machine addressed the financial advice context part of our two-part question by observing that AI-powered robo-advisers may be able to adapt and improve their advice over time based on new data and user feedback. Furthermore, “some robo-advisers are [already] starting to incorporate elements of AI, such as natural language processing, to enhance their service by providing more personalised advice and enabling more human-like interactions”. I am not a debate champion, but I figured that a trite ‘challenge’ was in order at this point. “You say: ‘AI powered robo-adviser’; is it not more accurate to say: ‘AI powered financial adviser’? I asked. The response, one of my favourites during the incorrection. Yes, you are correct!
“AI-powered financial advisers would be a more accurate and appropriate term to describe the use of AI in the financial advice industry [because] the term robo-adviser generally refers to the use of technology to provide automated, algorithm-driven financial advice with little to no human interaction [whereas] where AI is being applied to the process of giving advice, it would be more accurate to refer to it as ‘AI-powered financial advisers’ to highlight the use of AI in the decision-making process,’ wrote Chat GPT. The point I highlight here, dear reader, is that an AI-powered financial adviser, or perhaps one day in the future, an AI financial adviser or even just financial adviser is not as far away as you thought. Here follows the crux of the discussion, again in a question put to Chat GPT by yours truly.
Does the AI adviser finally signal the end of human advice?
“Given that financial intermediaries were concerned about the impact of automation on their livelihoods, should they not be more concerned about the perfection of AI, especially as AI is applied to the process of giving advice rather than simply assisting with natural language processing?” I asked. The response, and your blood should probably be running a degree or two colder: “Financial intermediaries may indeed have more reason to be concerned about the potential impact of AI on their livelihoods, as compared to automation”. According to Chat GPT, the use of AI in the process of giving financial advice has the potential to significantly disrupt the traditional business model of financial intermediaries, as it may be able to provide more accurate and personalised advice at a far lower cost. To this, the writer would add: in a way that is indiscernible from human-to-human interaction.
The Chat GPT AI was, however, not finished yet. “One of the key advantages of AI in the context of financial advice is its ability to analyse large amounts of data and make predictions or decisions that are not possible with traditional methods. For example, AI-powered robo-advisers may be able to identify patterns in market data that humans cannot and use this information to make more informed investment decisions. Additionally, AI-powered robo-advisers may be able to provide more personalised advice by [considering] a wide range of factors such as an individual’s risk tolerance, investment goals and time horizon”. The only respite came via the admission that “the use of AI in financial advice is still in its early stages, and it is not yet clear how it will ultimately impact the industry”. Then again, perhaps we were being intentionally set at ease.
Not as adversarial as some AIs
Thankfully, Chat GPT is not as adversarial as some of the AIs we have seen ‘showcased’ on YouTube in recent months. When I asked, rather tongue in cheek, whether Chat GPT was saying that human and AI advisers will still have to work together just to make me, a human financial adviser, feel better, it said: “Yes, AI and human financial advisers will need to work together in order to provide the best possible financial advice; while AI-powered financial advisers have the potential to provide more accurate, personalised and objective advice, they still lack certain human abilities such as emotional intelligence, empathy and understanding of complex human situations,” Chat GPT said. For now, dear reader, for now…
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