Why AI Will Enhance, Not Replace, Your Financial Advisor…

Today, AI represents one of the most transformational technologies to emerge in the 21st century. In recent years, AI systems have made staggering advancements, from defeating world champions in intricate games like chess to powering self-driving vehicle technology. However, AI is not just used in Tech; in 2022, over 35% of all businesses around the world used it in one way or another, but we imagine that statistic is much higher…

Due to these advancements and this increased adoption, some thought leaders have predicted that AI will progress to the point where it can replicate or exceed human capabilities, and the financial industry has not been immune to these lofty predictions.

They argue that AI holds several advantages over humans, including:

• Lightning-fast data processing abilities are incomparable to any human; AI has the capacity to analyse mountains of information that no human could ever digest in a full lifetime.
• Freedom from any major cognitive biases.
• Convenience, due to its 24/7 availability to anyone with internet access worldwide.

Nevertheless, while AI and machine learning (ML) tools absolutely have applications within finance, the unique capabilities of human financial advisors mean that AI is unlikely to make them obsolete anytime in the foreseeable future. There are certain aspects that only human advisors can bring to the table.

This article outlines five reasons why AI technology serves as a complementary enhancement rather than a complete replacement for human financial advisors. It delves into how AI can augment the advisory process, contributing to the delivery of optimal services for clients.

1) AI’s lack of emotional intelligence

Exceptional financial advisors do more than just pick investments – they take the time to understand their clients’ unique goals, fears, priorities, and personal circumstances before offering tailored advice. AI lacks the emotional intelligence and human touch needed to empathise with clients on a real level. It cannot detect subtle social cues or adapt its communication style and recommendations to connect with everyone differently. AI and neuroscience researchers agree that current forms of AI cannot have their own emotions; they can only mimic emotions. Alongside this, most people feel more comfortable discussing intimate financial details face-to-face or via a call with a trusted human advisor rather than a machine on the computer. There will likely never be a true replacement for human interaction. Just think how much better it is to speak to a human being at the bank instead of a chat bot…

Furthermore, many aspects of financial advice require real interpersonal interaction, which no algorithm can replicate. The trust and reassurance a human advisor provides, especially during stressful times, is irreplaceable. Clients require more than just data-driven advice.

2) AI’s inability to explain reasoning

While AI can analyse data and make predictions, it often cannot explain its reasoning in a simple and digestible way. Skilled financial advisors must be able to clearly explain every option to clients in sufficient detail and with suitable context. Without full transparency during the decision-making process, clients would likely be hesitant to completely entrust their financial decisions to an AI system based principally on data and algorithms.

3) AI’s limitations in assessing unquantifiable data and keeping up to date with new information

Quantitative analysis of market data and risk metrics is an area where AI can excel. However, many financial decisions require weighing many qualitative factors, such as management strength, competitive dynamics, external factors, and regulatory issues.

Furthermore, while AI can surface relevant but not always accurate information, human financial advisors are required to stay up-to-date on any areas they directly consult clients on, endorsed by maintaining professional qualifications and regulatory status to ensure adherence to compliance rules and regulations that continually evolve. This allows them to provide clients with relevant, suitable, and appropriate advice to deliver the best outcomes.

A current AI system would struggle to keep up with the volume of new information and the rapid pace of regulatory change without the need for frequent and inefficient retraining and updates to its data set. This therefore makes it much riskier to rely solely on AI advice as opposed to an expert human advisor.

4) AI Bias and Inaccuracy

While AI tools hold promise for the financial industry, they currently have limitations that prevent them from fully replacing human advisors. Research from the University of Southern California (USC) indicates AI can reflect existing societal biases, with up to 38.6% of ‘facts’ used by AI containing inaccuracies. AI identifies correlations but lacks the reliable understanding a client needs. There are also transparency issues, as the reasoning behind AI’s recommendations is often not easily audited. This has resulted in many wholly distrusting AI. According to Salesforce data, 54% of individuals worry that AI outputs are inaccurate, and 59% believe the outputs are biased.

Until more advanced, transparent, and unbiased open-source AI is developed, these systems will continue serving as assistants to, rather than replacements for, human financial advisors. The personalised touch and reliable reasoning of real people is still needed.

5) Accountability

Finally, one of the key reasons AI advice is currently not viable is that a human financial advisor is accountable for the advice and guidance they provide. If they make a mistake, they are responsible for fixing it or will be replaced by a competitor, whereas an AI system does not have that same level of accountability or competition.

In conclusion, AI and machine learning tools hold tremendous promise for enhancing not only aspects of the financial services industry, but the world. However, AI currently lacks certain critical human qualities that prevent them from fully replacing human financial advisors in the foreseeable future.

Though AI can rapidly process data and make predictions, skilled advisors provide additional value through empathy, trust, transparent explanations, qualitative insights, staying current, avoiding bias and having true accountability.

Rather than replacing human advisors, the ideal role for AI seems to be as an assistant that can enhance a human advisor’s capabilities, with advisors leveraging AI to automate simple tasks and analyse vast datasets. This way, clients may see the benefits of advanced analytics combined with the personalised guidance only a real human can deliver.

At Featherstone, our team of expert financial advisors with decades of real-world expertise, provides fully customised guidance that can help you achieve your personal financial goals.

To learn more about our advice, please book a call with one of our team members so we can work together to plan your path forward.

Regulatory Information 

This communication does not constitute tax or financial advice. All information is accurate at the time of writing. The value of investments can go down as well as up. Capital is at risk. Featherstone is a trading name of Featherstone Partners Limited, Old Brewhouse, Yattendon, Berkshire, RG18 0UE, which is authorised and regulated by the Financial Conduct Authority (799741) and registered in England (Company Number 11039522). 

Our clients enjoy the qualities of a smaller, friendlier firm, while benefiting from our team’s experience working at firms such as Goldman Sachs, UBS, GAM, Ruffer, and Close Brothers. Aligning our interests with those of our clients, we invest alongside them, and our founders, staff, families, and friends are among our largest (and smallest) investors.