These days, one often hears the question: “Why do I need a financial advisor when I can get everything from AI (artificial intelligence)?”
More and more people are feeding their portfolios into AI tools to decide whether to stay invested, whether to prepay a loan or invest the money, and even which mutual fund to choose.
A simple query on where to invest, run through one AI chatbot, produced a mix of sound and questionable advice. For instance, the tool suggested an asset allocation without first asking about the investor’s financial goals or risk-taking capacity. It also recommended a small equity allocation for a three- to four-year investment horizon. There was no clear rationale, meanwhile, for the specific asset management companies (AMCs) it recommended.
A financial advisor would typically begin with an assessment of goals and risk. And this is where the problem lies: investors may not stop to check whether AI-generated advice is actually relevant to their financial situation. Instead, they can be swayed by the warm, confident and friendly language these tools use. They may discover whether a decision was appropriate only after it is too late to reverse it. The same technology that makes financial information easily accessible can also, quietly and unintentionally, steer investors towards risks they may not want to take.
AI chatbots tend to present information in a confident and authoritative manner, making it easy to overestimate their reliability. This was evident during the recent income-tax return filing season, when taxpayers used these tools to generate tax calculations and several mismatches were reported. Inconsistent calculations can result when AI tools fail to account for the correct income-tax rules or the nuances of an individual’s circumstances.
AI tools are useful for routine queries and general financial education. But financial lives are shaped by complicated decisions arising from individual circumstances and life events. Personal finance is called “personal” for a reason. AI tools cannot account for all the nuances—and often the emotions—that a financial advisor considers when giving advice.
Consider a 65-year-old investor. An advisor may assess not only their willingness to take on specific investments but also how they want to pass on their assets. A 35-year-old struggling with debt, meanwhile, may need coaching on financial behaviour rather than simply a recommendation on the most efficient way to repay that debt. Much of the advice generated by AI assumes that people behave rationally. In reality, investors can be deeply irrational, particularly during volatile markets. An AI tool cannot handhold an investor through those moments or challenge an emotionally driven decision. It also tends to respond to the user’s framing rather than consistently playing devil’s advocate.
There is another important distinction. Financial advisors can be held accountable for the advice they provide and, where applicable, are subject to regulatory and fiduciary obligations. AI tools are not a substitute for that accountability. Fiduciary responsibility and accountability are cornerstones of sound financial advice.
Privacy is another concern. AI tools should not be treated as secure repositories for confidential financial information. Depending on the service and its settings, information entered into a chatbot may be logged, retained or accessed by service providers or integrated applications. Investors should therefore be cautious about entering sensitive bank, investment-account or tax information into AI tools. The growing use of AI has also created new avenues for increasingly sophisticated scams and fraud.
AI tools protect themselves with standard disclaimers, but these do little to protect investors from the consequences of acting on incorrect or unsuitable advice. The better approach is to treat AI as a starting point, not the final decision-maker.
AI can be excellent for learning financial concepts, gathering basic information and generating questions that help investors have smarter conversations with their financial advisors. But its responses are based on patterns and probabilities and should not be mistaken for verified, personalized financial advice.
Mrin Agarwal is a financial educator and chief executive of Finsafe India Pvt. Ltd, a workplace financial wellbeing company.
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