ChatGPT AI for Financial Advisors
The hot topic in many industries is ChatGPT and artificial intelligence (AI). Will ChatGPT hurt financial advisors or will ChatGPT help financial advisors? And, what about Google’s Bard and other AI platforms? Are they helpful or harmful?
Are Index Funds and ETFs AI?
An interesting argument can be made that the personal finance and investing world has been using AI for decades. It was crude, rudimentary AI for sure, but an ETF is nothing more than a computer investing your money without further input. This is the most basic of AI. You input $100, and a computer records, invests, and tracks your money autonomously making adjustments where necessary, all without human intervention.
As these products got more complex, they resembled AI more and more.
RoboAdvisors and AI
Unlike many industries, financial planners have seen attempts to replace them before. First came the online trading and the discount brokerage invasion, pushing back on the paradigm that required a broker or financial advisor. Just as important, the financial world made room for the self-advised with lower available investment dollars by discarding the extra cost of buying less than a round lot, or 100 shares. This change may have been bigger than low-cost trades. Buying 5 shares of Apple is a lot easier than buying 100 shares of Apple.
After adapting to the low-cost brokerage model, zero-cost trades came out, pushing the need for an advisor further away for many clients the invasion roboadvisors. Roboadvisors were the first crude AI in the financial planning world long before ChatGPT and AI stumbled into mass conscience.
Like a less sophisticated ChatGPT, roboadvisors projected the image of a smart successful computer program autonomously managing your money. Like with many things, it was the impression of roboadvisors as a new technology that pushed it forward. In reality, most roboadvisors were nothing more than a slightly customized mutual fund or basket of index funds. Indeed, the financial planning world reaped the benefits of less work explaining and getting buy-in for investments. Advisors could simply blame or praise “the computer.”
The latest blow to the financial planning and financial advisor world of personal finance is zero-cost, zero-barrier, zero-minimum, trading platforms and trading apps. Like computerized and internet-based offerings before them, these platforms remove even more of the barrier to investing and trading by letting investors buy even less than one share via partial shares or fractional shares of stock. In cases like Webull, Robinhood, Plynk and Sofi, investors can get started for as little as one dollar. Apps like Grifin take it one step further making investing near frictionless by automatically investing $1 worth of fractional shares in companies the investor does business with. For every purchase at Starbucks, the app buys $1 worth of Starbucks stock via an automatic bank account transfer.
Hey, if you decide to try Webull click this link. We’ll both get random stock shares as a bonus!
Financial Advisors and Customized Financial Plans
Perhaps the greatest insulator for financial advisors and financial planners is that many mainstream advisors turned over the actual financial planning years ago to computers. Starting with 10 or even 20 pages of “customized” financial plans, big mainstream investment companies generated a cleverly disguised fill-in the blank report with several pages of “explanation”, “customization” and disclaimers that made it sound like clients were getting a report where the advisor slaved away for hours writing 23 pages just for specific clients when in reality, most advisors did nothing more than fill in the blank computer forms. (That’s a crazy long sentence, but I’m going with it. Don’t worry, I’m a professional.)
After choosing some mutual funds or a handful of stocks, the financial plans ran autonomously behind the scenes until the client’s annual review.
Is ChatGPT Smart Enough to Invest Your Money
Here is where we get to the meat of the concept of ChatGPT hurting financial advisors by directing actual, customized, individual investing strategies to individual investors.
Can ChatGPT Invest for You
The link between your investing account and ChatGPT or other AI models is coming. Such a thing likely will be frowned upon by the SEC and a handful of other government agencies. However, like crypto before, if there is a way to do it without going through one of the governmental variables then it doesn’t matter what the SEC thinks.
So, is ChatGPT smart enough? Is an AI ready to invest your money?
It is important to remember that these AI models are actually just predictive text models. Using an unimaginable amount of data, these models predict which “tokens” of text come next. In other words, ChatGPT and Bard and other AIs are doing nothing more than telling you what the entire world of their training data says comes next. In a real way, ChatGPT, Bard, and AI tell you what everyone thinks crammed down into the word, letters, or concept that comes next. ChatGPT is the ultimate way to detect the “word on the street.” How often is that correct?
ChatGPT Financial Advisor Replacement
Just like the technologies before, ChatGPT can step another layer in front of any human interactions. Where roboadvisors directed investors into “customized” investment buckets, AI can do the same, only with even more customization and much much less oversight.
Should you invest in Delta Airlines?
Go ahead. Ask ChatGPT or Bard.
They don’t know the future anymore than anyone else does, but they can summarize the world’s thoughts about your stock investment. In the end, is ChatGPT nothing more than the random walk down Wall Street? Letting a box choose your investments is no smarter or dumber about the future whether the box contains a really complex computer engine, or a chicken pecking randomly on an electric display.
Either way, you have to decide how much you trust what comes out of the box and there is no right answer. In this space, a human financial advisor can do what they have always done, give you reasons to trust or not trust the box. Financial advisors and financial planners will have to adapt, but the need for humans to tell clients and investors that they are being smart won’t go away yet.
By Brian Nelson – Brian is a former Certified Financial Planner and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended for financial or investment advice. ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please note that such material is not updated regularly and some of the information may not be current. Consult with your own financial professional when making decisions regarding your financial or investment options.