During my decade in the financial services industry I’ve been called a financial advisor, a financial planner, a financial coach, a financial educator, and -- well, you get the picture. You think you’re confused? I was confused, too! The financial advice industry is full of jargon and a complete lack of clarity around the role(s) of those who are supposed to be “helping”. There’s also very little a person needs to do in order to call themselves a financial advisor or coach, thus opening the door for low quality people and bad actors to earn their living in this industry. Did you know you can be a life insurance salesperson and hold yourself out as a full financial advisor? You can also be someone who pushes risky or downright unscrupulous “investments” and still calls yourself a financial advisor. We know the stories of Bernie Madoff and the many other headlines of advisors making a fortune off the backs of their unsuspecting clients/victims. This has led to a massive distrust of financial professionals and where the good ones are constantly trying to prove their value.
The financial services industry has long been plagued by a lack of clarity surrounding the term "financial advisor." The broad and varied nature of advisors' skill levels, education, credentials, incentives, and pay structures has led to a pervasive sense of distrust and confusion among consumers. The questions regarding trust, conflicts of interest, fees, and the potential for mistakes in portfolio management have fueled the rise of robo-advisors and a growing interest in do-it-yourself investing. Calls for industry unification and standardization have mostly gone unanswered and without consensus as to how to proceed.
Frankly, the governing bodies and overseers of the financial industry have not done nearly enough to clean up the messes caused by bad financial advisors. Sure, there are fines and settled court cases every now and again, but the problem persists. How can we move forward and create a world where everyday people can get the financial guidance they need without fearing they’re being ripped off or given bad advice?
We believe artificial intelligence holds the key to a better future. The integration of artificial intelligence (AI) into personal finance can and should be employed by financial services firms to eliminate unscrupulous practices and reduce the reliance on often flawed human advice. Furthermore, those who don’t adopt artificial intelligence into their practices will be left behind, or worse, become obsolete. The bad actors within the financial services industry will be exposed by artificial intelligence.
The broad spectrum of financial advisors, ranging from annuity and life insurance salespeople to fee-only Certified Financial Planners, has created confusion and skepticism among consumers. Who should I trust? How do I know if they’re working in my best interest? How much do they cost? What incentives are driving them? Questions about trust, conflicts of interest, fees, and the potential for mistakes in portfolio management persist, leading to the rise of alternative investment platforms and DIY approaches.
The unification and standardization of the financial services industry has been top of mind for years among practitioners and regulators, but tangible change has yet to materialize. The CFP Board has led the charge to become the gold standard for financial advising and planning individuals, but are still competing with other credentials such as the CFA, AIF, and dozens of others. The complex landscape of advisors' skill sets, education, and credentials has made it difficult for consumers to discern between reputable professionals and those driven by self-interest.
AI presents an opportunity to reshape the financial advisory landscape by providing solutions to both advisors and their clients. AI’s potential to perform tasks with greater accuracy and less bias can be leveraged to instill trust and provide reliable financial guidance. Trust is a critical factor in the adoption of AI in the financial industry. There is work to be done for AI to gain the trust of consumers and advisors alike, but if developers of artificial intelligence can focus on transparency, increasing reliability, and user education over the coming months and years, that initial skepticism associated with AI-powered financial advice can and will subside.
AI in personal finance has the potential to eliminate bad actors in the industry, reducing flawed human advice and recognizing and calling out improper investment recommendations. AI can perform many tasks traditionally associated with financial advisors, offering greater accuracy, reduced bias, and full alignment with the client's best interests. AI can and should inform users about how advisors are paid, what investment vehicles are appropriate for them, and what red flags to be aware of when choosing who to work with in the industry. Bad financial advisors will no longer have anywhere to hide. Even advisors who aren’t offering much actual value will be exposed. Advisors at risk of being replaced by AI, include those who are commission-based, stock pickers, selling expensive products, and non-fiduciaries.
There is also a world where financial industry regulators crackdown on bad advisors through the use of AI. So many improper investment recommendations and scams happen because the governing bodies simply don’t have the manpower to police everyone all at once. AI can solve this through its ability to efficiently and effectively parse data, recognize anomalies, and protect consumers’ best interests. AI is already widely used in finance but the capabilities can be expanded further to expand the reach and utilization over the overseers. Compliance can and should be largely left to artificial intelligence due to its ability to constantly monitor activity at an incredibly detailed level.
Great human advisors, planners, and coaches will not become obsolete, those who integrate AI into their practices will thrive. If they can leverage AI to enhance the quality of financial advice and promote a collaborative approach between AI and human expertise - the possibilities for growth and a supremely run practice are limitless for those who adapt the technology. AI can perform many useful tasks for advisors and clients including providing customized portfolio guidance, analyzing spending patterns, automating financial goals, recommending portfolios, and demonstrating various financial scenarios. These are all currently time consuming activities that monopolize an advisor’s work day. By outsourcing to AI, advisors can reallocate their efforts to revenue generating activities.
Unlike human advisors, AI is not incentivized by commission or self-interest, it operates smarter, focuses on education, and provides "just-in-time learning." Additionally, AI is available 24/7, is cost-effective, non-judgmental, and plays multiple roles in advising, portfolio management, and coaching. These features will dramatically reduce the hands-on work any advisor needs to do during a typical week.
The incorporation of AI into financial advising is ultimately a positive development for both advisors, clients, and industry regulators. It expands access to expert financial guidance, removes bad actors from the industry, encourages collaboration between AI and human advisors, and prompts regulators to establish uniform standards for experience, education, and credentialing. The coexistence of AI and human advisors is not a threat but an opportunity for collaboration, ensuring the delivery of expert financial services in an increasingly complex and dynamic environment. Embracing AI as a tool for financial well-being represents a step towards a more transparent, accessible, and trustworthy future in the world of personal finance.
