Financial advice can be a sensitive topic – those giving it don’t want to mislead customers, while customers are wary about the level of trust they can place in their advisers. Nonetheless, done correctly, investing can be a very beneficial way for someone to use their funds. This November we are exploring all the aspects of wealthtech and how the industry has developed this year.
Our final focus this month is on robo-advisors and their impact on the investment and wealthtech spaces. Artificial intelligence (AI) has become the norm in our lives – many sectors have some sort of AI-driven function to help customers out, but can robo-advisors fill this role in the financial sector reliably?
Complimenting human agents
Muj Choudhury, founder and CEO of RocketPhone
For Muj Choudhury, founder and CEO of RocketPhone, the all-in-one voice platform with smart automation, regulators have a key role to play in ensuring who has the credentials to give financial advice, and in turn, utilise AI. However, once approved, firms must not overly rely on the tech.
“Regulators have an important role in deciding who should be giving advice and what credentials they need in order to do so, and those credentials are key. In financial services, advisors must understand the nature of markets, sentiment, mood and the fast changing factors at play that need to be considered.
“AI uses data that only goes back a finite number of years, and tools like ChatGPT are generalist platforms that can’t decipher the most relevant data that is needed to make appropriate recommendations. The crucial point is that even if AI does know everything about the market, it can presume nothing about the customer.
“For that reason alone, the ability to process a customer’s circumstances is best handled by a human advisor, who can instil confidence in their clients that they’re providing the best solution for what is often a complex situation and has the right experience and qualifications to be able to do so. Rather than AI being used directly to deliver financial advice, it should be used to empower financial advisors to give the best advice possible, making them more efficient, informed and confident in their work.”
Regulating AI
Elle Farrell-Kingsley, author, freelance tech presenter, advisor, and faculty instructor at the University of Arizona and Hebei University of Technology
In a similar vein, Elle Farrell-Kingsley, author, freelance tech presenter, advisor, and faculty instructor at the University of Arizona and Hebei University of Technology, also put a spotlight on the importance of regulations. She says: “To be what I would consider ‘reliable’ (as much as tech currently allows), AI must not only provide factual advice but also comply with legal frameworks, such as the GDPR (Article 5), which ensures data privacy and transparency.
“Similarly, Article 22 prohibits automated decisions that significantly affect individuals without human intervention, ensuring that AI advice doesn’t compromise individuals’ rights.
“AI tools must also follow the EU AI Act (which the first code of practice was published today) for high-risk applications, ensuring transparency and human oversight, and the UK Data Protection Act (Section 14) mandates the correction of inaccuracies in AI-driven decisions. Furthermore, Article 35 of GDPR requires data protection impact assessments (DPIAs) when deploying AI tools, ensuring compliance with privacy standards.
If any of these regulations are not upheld, then it also becomes an ethical issue — who will be liable? The advisor? The consumer? The company? Big tech, if a consumer uses it and creates financial losses? These are all significant risks that regulations haven’t quite caught up on.”
Democratising advice
Adam Nash CEO and co-founder at Daffy
Historically, it has been difficult for everyone to get to speak to a qualified financial advisor. However, Adam Nash, CEO and co-founder at Daffy, the donor-advised fund, explains how utilising AI can actually mean human advisors can take on more clients, and in turn, make financial advice more accessible.
“The big problem today is that while most people need financial advice, most of them don’t meet the minimums that financial advisors require to take them as clients. AI not only offers an opportunity to continue to democratise access to high-quality financial advice but also allows financial advisors to greatly expand the number of clients that they can support.”
Combatting emotional decisions
Alex Choi, co-founder and CEO of FinanceHQ
Alex Choi, co-founder and CEO of FinanceHQ, a platform that connects individuals with financial advisors, notes two way in which AI can be used to augment a financial advisor’s practice.
He says: “Firstly, AI helps enhance datasets and provides insight into historical market trends and economic indicators, providing advisors with additional data to make informed decisions.
“Secondly, AI can analyse behavioural patterns in client decision-making to help advisors understand when clients may be making emotional rather than rational financial decisions. This enables advisors to intervene and provide calming, rational advice.
The post How Can AI be Used Reliably to Give Financial Advice? appeared first on The Fintech Times.
