The Evolution of Financial Advisory: Can AI Replace Human Financial Advisors?

The Evolution of Financial Advisory: Can AI Replace Human Financial Advisors? 

Technological innovation has been at the forefront of development within all business sectors and industries. Within the financial environment, the rise of fintech is easily observable. Society is progressively ditching its reliance on cash as platforms, and apps become more adept at dealing with all financial concerns, as well as better equipped to manage accounts and databases. A recent survey shows a majority of the general public, around 81%, believe that banks have, for the most part, managed to keep up with the development of fintech services. While it is a relatively new term typically associated with the 21st century, the truth is that its roots can be traced back to the 19th century, when Morse code and telegrams began to be used to move money. 

In the 21st century, there has been increasing reason to bring AI into financial advisory. The rise of ChatGPT-4 has shown better than anything that the general public is excited about the prospect of AI. It is very versatile and able to engage in human-like conversation. And while not yet perfect, its wide range of possible uses has brought a pertinent question into the minds of the general public: Will AI be able to replace professionals across different fields? Will it be able to displace financial advisors? 

Advantages over human interaction  

To examine the question, it’s crucial to have a good idea of how exactly artificial intelligence operates and its learning capacity. The system is incredibly complex, but to put it simply, it works by getting access to large bodies of data and then combining the information it obtains with its processing algorithms. So far, however, this seems no different than a regular algorithm or application. What makes artificial intelligence different is that it can learn behaviour patterns in the data set. Each time it goes through data processes, it also self-measures performance, improving its expertise. 

The conversational abilities of ChatGPT-4 have been particularly noteworthy, as artificial intelligence has shown the ability to understand context. It can also engage in more natural and intuitive exchanges than its predecessors. So far, it has been demonstrated that it can process complex linguistic structures, including metaphors and sarcasm, meaning that it can interact with others more meaningfully. 

This has raised some questions regarding the learning capacity of AI and its learning capacities. While the answer to this question is still unclear, the most likely scenario is that artificial intelligence can become a multi-purpose learner just like human beings. As such, it can be employed within various fields and adapt to virtually any task. 

There are several advantages of interacting with AI compared to a human advisor, including a more rapid process, the elimination of biases and a more streamlined process. However, that doesn’t mean there are no potential problems. 

The limitations of robo-advisors  

The concept of robo-advisors refers to online applications that provide customers with automated financial services. The planning used by the program is fully automatic and based on an algorithm. While some human supervision is sometimes required, it isn’t always necessary. Robo-advisors offer solutions based on a set of questions aimed at determining the client’s financial goals and current monetary situation. 

They have become more popular mainly due to the relatively low management fees and the boost in service accessibility. However, there are also some software limitations, including the lack of individual customization, which enables a human advisor to offer a more comprehensive solution to a client’s issues. A robo-advisor might not consider the bigger picture and provide narrower investment choices. 

Compared to that, AI is likely to be able to provide more personalised service. Since it can process more data and make better predictions, it will provide more efficient and accurate results. 

Training AI for Financial Advisory 

Many banks already use machine learning and artificial intelligence to predict client behaviour, including understanding people’s expectations and preferences, which can help improve customer satisfaction. It can even be used to improve financial management and detect fraud, contributing to a safer financial experience overall. As such, it seems like the future of financial planning is already here. 

However, much like humans need to be trained, AI must be adapted to fit into the financial advisory world. The potential for the development of artificial intelligence in this field is considerable, as its ability to comb through massive amounts of data in a relatively short time means it’ll make processes faster overall. 

Yet, it can also seem like its abilities are too generalised. Will it be able to lend its capabilities to a particular field? If AI is to be employed on a wide scale in financial advisory, it has to be trained through vast and comprehensive resources. While a CPU can be used for more basic, menial tasks, deep learning will require large data sets as well as neural networks. High-quality data is a must, with accuracy one of the fundamental pillars. However, it’s very likely that no company will be able to get the procedure right from the first try, requiring additional experimentation and trial-and-error. 

If done correctly, AI can be the foundation of personalised financial services. Customising processes is fundamental to delivering the best possible experience for customers. For instance, while Gen Z is likely to be more interested in the available virtual banking tools, Baby Boomers will be concerned about security. Gen Xers will want to receive consistent support and innovative strategies. 

Portfolio Rescue recently discussed the importance of a personalised experience when it comes to financial advice, for example, for those living in high-cost areas and the context of high inflation and climbing interest rates. The podcast has also discussed that while the impact of AI within the sector is currently speculated, the possibilities are truly endless. This brings us to the following point: 

The Human Element in Financial Planning  

While artificial intelligence has certainly come a long way, and there are still many more ways in which it could develop in the future, there’s no denying the importance of the human element across all different business industries and niches. For this reason alone, it’s impossible to say that technology will be able to thoroughly remove human financial advisors. 

Only a human being can perform some aspects of financial planning. Since customers are human, their monetary goals deal a lot with apprehensions, hope for the future, and ambitions. Many might also feel uncomfortable discussing with an AI system instead of a human. 

As in any industry sector, several grey areas must be taken into careful consideration. For financial planning, they include contingencies, depreciation and amortisation. In these situations, human judgement is preferable to the computational power of AI. There’s also a lot to be said about the human element of business, which AI is unlikely to ever be able to replace. Empathy and the ability to understand customers are highly important. No matter how well-adjusted, a system cannot provide this level of interaction. 

A complementary role for AI  

It would seem that the best thing is to find a middle ground and promote work done by human advisors, just augmented with the help of artificial intelligence. Those using AI can communicate their decisions more confidently to their clients as they have more analysed data to back them up. Artificial intelligence-derived insights can help advisors become leaders in their niche and help them attract more clients. 

Human-AI collaboration in finance offers many potential benefits, including higher accuracy and improved decision-making, which help provide customers with a more satisfactory experience. That is, of course, only if AI remains a commodity aimed at helping human beings and not replacing them. 

Speculation on the future of financial planning  

While it is still too early to predict how AI will develop, there’s room for speculation. Within two to three decades, AI might drastically change the financial advisory ecosystem. Services will be available 24/7, portfolios will be better optimised, and hyper-customization will become more widespread. 

When technology and humans collaborate, the result can only be beneficial, as both can bring qualities the other lacks. While AI is undoubtedly impressive, it cannot understand each client’s unique circumstances, making it an unlikely contender to replace human workers. However, it’s clear that for the financial planning sector to develop, it needs to use the latest technologies. 

Conclusion  

For financial advisory to develop well, there needs to be a balance between human and AI work. The input of human advisors is irreplaceable, as the human element will always be valuable. Therefore, while change is inevitable, collaboration remains critical. 

Join the discussion by sharing your thoughts and opinions on how AI is likely to evolve in the field of financial planning and how you perceive the balance between technological innovation and human workers.