Should you trust AI to manage your finances?

“Each time I see my advisor’s number pop up on my phone, my stomach drops,” confesses Amina. She hates thinking about her finances, and hates discussing them even more. She admits, somewhat begrudgingly, that all the vernacular associated with savings, investment, finance and real estate can sometimes feel like a foreign language.

Those rare times she would manage to drag herself to her advisor’s office, she would feel overwhelmed in just a few short moments. “It was intimidating to talk money with someone who knew so much about it,” she says. “I would listen to my advisor, but I could hardly understand anything he was saying. It was draining.” So when artificial intelligence tools came on the scene, Amina saw them as a means to avoid uncomfortable conversations. “I got into a big conversation with a chatbot. Its friendly, convincing tone put me at ease right away. I could ask it to explain complex concepts to me as though I were a six-year-old.”

However, among the relevant analyses and plain-language explanations were a few tips that didn’t quite tie into Amina’s situation. “I was about to invest in a fund recommended by the AI, when I mustered up the courage to call my advisor. Being much more familiar with my circumstances, he pointed out that the funds I was already investing in were performing better than that which AI had recommended. And they corresponded better to my values.”

Let’s face it: whenever we have a question about money, many people now turn to an AI app before even thinking about calling their advisor. There’s no appointment booking, no wait times, no need to admit they don’t quite understand certain basic notions. AI is quick, readily available and often very competent when it comes to explaining concepts that seem complicated – a big reason why the use of AI is on the rise. But does that mean we can blindly trust it with our financial future?

Perhaps not.

To get a better grasp of the opportunities – and limits – of this technology, we spoke with Angela Iermieri,* Financial Planner at Desjardins Financial Services Firm. She is particularly interested in the role AI plays in managing personal finances and has tested several tools to assess their potential.

According to Iermieri, “AI can be a good starting point in your research, to learn more about personal finances or investments, for example.” AI tools can also help simplify hard-to-understand financial concepts, recommend budget models, structure financial goals, populate certain money management apps and even support automatic savings tools. If you want to become more financially savvy, AI can be a great ally. But, as Iermieri mentions, it’s incredibly important to check the AI’s sources and ensure that any information stated is reliable and up to date.

In Iermieri’s opinion, one of the main risks of using AI for financial guidance is that it rarely has the big picture. “AI will answer the user’s questions, but it doesn’t have access to the full scope of their financial situation.” She goes on to say that if, for example, you ask AI, “Is it better to pay off my debts or invest?”, the answer will seem relevant at first, but it’ll be incomplete. “Because it doesn’t know your interest rate, investment horizon, tax situation, risk tolerance, financial flexibility or long-term objectives.” And it’s precisely these things that help determine the ideal strategy for you. “Someone just getting their feet wet in money management can’t know what they don’t know, and as a result, they can’t know what questions they should be asking or what information they should be adding to their queries.”

AI therefore isn’t as perfect as it seems.

Iermieri adds that it can also be influenced by the data on which it has been trained or the way it was developed. “Some information is compliant and has been verified. But this isn’t the case everywhere. That's why critical thinking is so important, even if it isn't always easy.” Then there are privacy concerns to take into account. Certain platforms have high data protection standards, but others have fewer guarantees. So before sharing any personal or financial data, it’s important to understand how the platform uses and stores information.

The Quebec financial markets authority (AMF) indicates that while artificial intelligence tools can be handy, they should not replace basic checks or advice adapted to your situation. The following are a few precautions for investors.

• Avoid relying only on AI. It can help you analyze certain data, but it doesn’t know everything! Before making any investment decisions, be sure to check various sources of information.
• Get informed before you invest. So you can have a better understanding of the risks associated with the investments or trading advice AI offers, the AMF recommends that you dig deeper, be it by checking other sources or getting the help of a professional to make sure the proposed investments fit your needs.
• Watch out for investments promising quick returns. If your AI is guaranteeing a risk-free, quick-return investment, you’ll probably want to take a hard pass. There’s a good chance it’s a scam.
• Go through registered companies. If an AI is recommending one investment platform over another, make sure it’s a registered company. And don’t forget to get informed about the risks, fees, etc., associated with the recommendation.
• Protect your personal data. Avoid sharing sensitive information with an AI whose privacy policy you’re unfamiliar with.

AI can be an excellent copilot. But when it comes to your financial future, it can be risky to hand over the wheel completely. “While it can offer food for thought and answers to your questions, an advisor can assess the relevance of its recommendations and determine how they apply to your reality,” explains Iermieri. “The advantage of an advisor,” she adds, “is that they have a holistic understanding of a person’s situation; they know their goals, their family situation, the projects they want to undertake, their investment profile and risk tolerance. They can ask questions, understand nuance and develop an appropriate strategy.”

And contrary to what you may believe, advisors use AI as well. “It helps us calculate and analyze data quicker, and it allows us to set up various scenarios. After that, we rely on our judgement, experience and expertise to make recommendations tailored to our clients.”

In Angela Iermieri’s opinion, the best approach is to combine the two. “Start your research using AI; it’s a great way to become more familiar with the world of personal finance. Once you’ve done that, book an appointment with an advisor to validate the information you received and see how it can apply to you.”

Fortunately, this is the conclusion that Amina came to as well. After having used AI to get a better understanding of the financial concepts she initially found so intimidating, she contacted her advisor to check the chatbot’s recommendations and make a final decision. In the end, she obtained financial advice in accordance with her expectations, her reality and her values – without relying blindly on guidance from a robot. The best of both worlds.

* Mutual Fund Representative for Desjardins Financial Services Firm Inc.

Source : https://www.amf-france.org/fr/espace-epargnants/actualites-mises-en-garde/utiliser-lintelligence-artificielle-pour-investir-quoi-faut-il-faire-attention [French only]