I asked Chat GPT to, “act as a financial advisor and tell me which investments are apt for me to accrue 5 crore by the time I turn 60.” The response: “As an AI language model, I cannot provide personalized financial advice without knowing your individual financial circumstances and risk profile. However…” and then it continued to dole out a long list of generic advice.
Even though there may be a way to get the AI model to share personalized investment opportunities, you will always receive a generic response that only makes reference to the most popular pieces of advice in the form of data the model has gathered from the internet. It’s equivalent to asking your neighbor or uncle for advice on what has worked for them and acting on that advice.
OpenAI, a project led by Sam Altman, created ChatGPT, which quickly became well-known for its capacity to generate text that resembles that of a human’s. Merely five days after its November 2023 debut, ChatGPT attracted 1 million users, making it the fastest consumer product launch in history. Chat GPT has a wide range of capabilities, including the ability to write essays, generate code, and act as a Linux terminal.
However, it is essential to consider how ChatGPT produces its responses. The AI model generates text based on vast amounts of open data scraped from the internet. While this approach may work for general inquiries, it falls short when it comes to providing personalized financial advice. Financial planning requires a deep understanding of an individual’s unique financial situation, goals, and risk tolerance, which cannot be gleaned solely from internet data.
Here is where I believe Chat GPT or even Robo-advisory falls short in terms of providing sound financial guidance:
Limited Scope: One of the limitations that Chat GPT has clearly conveyed is its “limited knowledge of the world and events after 2021.” So if you are looking for the latest data-driven investment recommendations, you may be in for a rude shock. While some robo-advisory platforms may have access to the latest data sets, they typically have a narrow focus and can only offer investment advice. They are unable to offer advice on other complex financial matters, like retirement or estate planning.
Lack of Flexibility: Chat GPT provides responses as accurate as the data and algorithms on which they are based. In essence, these data sets are sizable chunks of information gathered from numerous open data platforms. This data can’t be relied upon to offer clear-cut advice because it might contain even biased or incorrect information that isn’t necessarily relevant to the state of the market right now. Even robo-advisory platforms follow a rigid investment algorithm, which may not allow for flexibility in changing market conditions. This can result in missed opportunities or poor investment decisions.
Lack of Accountability: Unlike a registered (human) financial advisor who is bound by a legal fiduciary responsibility to act in the best interests of their clients, ChatGPT has no such obligation. Chat GPT and robo-advisory platforms are not required by law to act in your best interests as fiduciaries. This implies that the guidance you receive might not be the most appropriate for your particular financial situation.
Lack of Human Interaction: Furthermore, ChatGPT lacks the human touch that is crucial for financial planning. As a financial advisor, I understand that financial planning can be a complex and emotional process, and clients need someone they can trust to guide them through it. ChatGPT cannot provide the level of empathy, support, and accountability that human advisors can.
In conclusion, as a financial advisor, I can understand the appeal of using robo-advisory platforms like ChatGPT to manage your investments. So here is the way I see it:
Technology has facilitated investing, but it has also presented a particular challenge. Due to the simplicity of investing, many investors act like consumers and swoop in to buy every financial product they come across. The majority of the time, the investor purchases the wrong financial instruments, leading to an overabundance of financial products and little knowledge of how to handle them.
On the other hand, while ChatGPT is an impressive AI language model, it is currently not equipped to provide personalized financial advice that meets the unique needs and circumstances of individuals. Nevertheless, having said that, we cannot underestimate the power of AI. There is certainly a lot that it can and will do as it progresses. I believe technology cannot replace the experience and human connection that human advisors bring to the table today. Similarly, humans cannot replicate the capability to access, decipher, and simplify knowledge from the vast amounts of data, a superpower that AI seamlessly contains.
Hence, when it comes to being fiduciaries, investors will have to depend on human advisors for the trust, personalization, empathy, support, and accountability they provide. For data-driven insights and accuracy, human advisors will need to reach out to AI models like advanced versions of Chat GPT or robo-advisory to offer their clients the best of both worlds. By doing so, investors will be in a better position to make informed financial decisions that align with their goals and help them achieve long-term financial success.