Help Me Navigate My Finances Better - AI VS. Financial Advisor
Navigate your finances with confidence. AI vs. financial advisor: which is right for you? Learn how technology is transforming personal finance management.
Author:James PierceReviewer:Camilo WoodSep 27, 2023869 Shares78.9K Views
Technological advancements have pitted men against the very machines they invented, with the latest one being that of AI vs. financial advisor.
The world of finance and wealth management stands at a crossroads, where the age-old wisdom of human financial advisors collides with the disruptive power of artificial intelligence (AI).
Let’s delve into the intricate dynamics of AI vs. financial advisor to understand how these two forces are reshaping the way we manage and grow our wealth.
AI And Finance
Artificial Intelligence (AI) refers to the development of computer systems and algorithms that can perform tasks that typically require human intelligence.
These tasks include but are not limited to:
| language understanding | problem solving |
| learning | reasoning |
| perception | robotics |
AI technologies have made significant advancements in recent years, and they are being applied in various fields, including:
- e-commerce
- entertainment
- healthcare
- transportation
AI in finance refers to the application of AI technologies in the financial industry through advanced computational techniques (e.g., machine learning algorithms) to:
- analyze financial data
- automate processes
- enhance decision-making
- make predictions
AI is revolutionizing various aspects of finance. In fact, AI vs. financial advisor is becoming a hot topic these days.
Here are some key areas where AI is making an impact in finance:
a. Algorithmic Trading
AI algorithms can analyze large volumes of financial data at high speeds to make trading decisions.
They can identify patterns, trends, and anomalies in market data and execute trades automatically. AI can do these things often with minimal human intervention.
This approach is known as algorithmic trading or quantitative trading.
b. Risk Management
AI helps financial institutions assess and manage risk more effectively.
Machine learning models can enable banks and investment firms to make informed decisions.
They analyze historical data to predict:
- market fluctuations
- credit default risk
- other financial risks
c. Fraud Detection
AI is used to detect fraudulent activities in real-time by analyzing transaction data.
Machine learning models can identify unusual patterns or behaviors that may indicate fraud, helping financial institutions protect themselves and their customers.
d. Customer Service
Chatbots and virtual assistants powered by AI are increasingly used in customer service within the financial sector.
Overall, they can improve customer satisfaction and reduce costs as they:
- handle routine inquiries
- provide account information
- assist with basic financial tasks
The issue of AI vs. financial advisor can be all about a company’s cost-cutting measures.
e. Credit Scoring
AI models can analyze a broader range of data sources to assess an individual’s creditworthiness more accurately.
This includes non-traditional data such as social media activity, which can be particularly useful for evaluating borrowers with limited credit histories.
In summary, AI in finance can lead to improved decision-making and better customer experiences in the financial industry.
It represents a significant technological advancement that can make various financial processes:
- accurate
- automated
- efficient
Using ChatGPT In Finance
This AI vs. financial advisor thing started to catch more attention as the popularity of ChatGPT soared.
ChatGPT is an example of artificial intelligence (AI).
It’s a machine learning model developed by OpenAI based on the GPT (Generative Pre-trained Transformer) architecture.
Founded in December 2015, OpenAI is an artificial intelligence research organization and company headquartered in San Francisco. It’s known for its work in the field of:
- artificial intelligence
- machine learning
OpenAI’s founders include:
| Name | Information |
| Sam Altman | OpenAI CEO; former Reddit CEO and Y Combinator president |
| Greg Brockman | OpenAI president; former CTO at Stripe |
| Elon Musk | Tesla Motors CEO; SpaceX creator & CEO; PayPal co-founder |
| John Schulman | a pioneer of deep reinforcement learning; Ph.D. in electrical engineering and computer sciences at University of California, Berkeley |
| Ilya Sutskever | Chief Scientist of OpenAI |
| Wojciech Zaremba | former research scientist at Google Brain and Facebook AI Research; Ph.D. in deep learning at New York University |
OpenAI’s mission is to ensure that artificial general intelligence (AGI) benefits all of humanity.
It has developed ChatGPT as part of its ongoing efforts to advance natural language understanding and generation technology.
Moreover, ChatGPT is a type of conversational AI.
It’s designed to generate human-like text responses and engage in natural language conversations. It uses deep learning techniques to understand and generate text based on the input it receives.
In addition, ChatGPT, through text-based interactions, can be used in a wide range of applications, such as:
- answering questions
- assisting with various tasks
- providing explanations
So, when it comes to AI vs. financial advisor, ChatGPT represents the former as it competes with the latter.
DataCamp, a site about artificial intelligence and data science, published an article in June 2023 on how to use ChatGPT for financial help.
Below are ten ways, as enumerated by DataCamp, you can use ChatGPT in finance:
a. To produce reports
Generating reports (e.g., summaries of quarterly earnings) takes up a lot of time. Use ChatGPT to do it faster. This AI tool can give you a detailed summary of your company’s financial status and performance.
Example prompt(the words you’re going to type on ChatGPT):
Generate a comprehensive report about the financial data I will include here. Explain the company’s financial performance by analyzing Key Performance Indicators (KPIs), explaining observations, and recognizing trends.
b. To examine text data
Use ChatGPT to analyze textual information, such as:
| analyst reports | investor conference calls |
| central bank statements | market commentaries |
| corporate announcements | news articles |
| credit ratings reports | regulatory updates |
| earnings reports | SEC filings |
| economic indicators | social media sentiment |
| global events | trade war updates |
This various textual information can guide you when making sound financial decisions and taking calculated risks.
Example prompt:
Below are links to recent market commentaries about investing in the next six months. Analyze them and highlight the main points that will help me with my investment decision.
c. To create “a question-answering system”
Dealing with financial data involves a lot of questioning on your part. Use ChatGPT to provide you with the answers.
With AI vs. financial advisor, the latter can also answer inquiries but the former does it faster.
Example prompt:
I have included here my company’s financial data for the first half of 2023. How much is the total operating expense incurred during the first quarter? What is the percentage of revenue growth for each month?
d. To make data analysis interactive
Aside from responding to your questions, ChatGPT can also make an “interactive system” when you use it to examine financial data.
When given data that it can access, ChatGPT can analyze them and give you corresponding insights.
Example prompt:
Here are the financial data for ABC Inc. and QRS Corp. Compare and analyze the marketing expenses of these two companies for 2021 and 2022. Which of these two do you think can provide a better visualization of this comparison: a graph or an infographic?
e. To summarize investment details
Financial data can be overwhelming. Use ChatGPT to help you navigate through these waves of information. It can summarize data about stocks, for example, to make them more comprehensible.
Example prompt:
Here are some of the stocks that several analysts have been talking about recently. Summarize the data available about each of these stocks and how each performed in the last three years.
f. To produce condensed financial data
ChatGPT can highlight the important things from various local and international business news as well as analyze current issues in the financial sector. Such information can help you become updated with the business world.
Example prompt:
Below are the links to ten financial news reported last week. Summarize each of the news articles. Identify the stocks that analysts predicted to go down and the stocks to look out for.
g. To get information from automated customer interactions
Chatbots are computer programs designed to simulate conversation with human users, typically through text-based or voice-based interfaces.
They use natural language processing (NLP) and AI techniques to understand and respond to user queries or commands in a way that feels like interacting with a human.
ChatGPT can create chatbots to manage business transactions, including client inquiries and requests.
Example prompt:
Assume that you’re a chatbot for a real estate company. Provide answers to these queries: “What is the lowest price for a one-bedroom apartment in Phoenix, Arizona?”; “What are ten apartment buildings nearest to the Empire State Building?”; and “What apartments in the Lakewood neighborhood in East Dallas, Texas, that allow pets?”
h. To explain predictions regarding financial data
ChatGPT can explain financial forecasts in plain words.
Example prompt:
Milestone Corp. made a forecast that by December 2023, it would have increased its revenue by 8.5 percent. Explain this projection using layman’s terms.
i. To make financial jargons clear
The general public may find it difficult to understand the different jargons used in the finance world. ChatGPT can translate complex terms into layman’s terms for faster and better comprehension.
Example prompt:
Here is a financial report that mentions the terms “hedge fund,” “liquidity,” and “liquidity risk.” Explain those three terms in plain language and in the context of the said report.
Here are other complex financial jargons you may encounter:
| asset allocation | leverage |
| credit default swap (CDS) | market liquidity |
| collateralized debt obligation (CDO) | price-to-earnings ratio (P/E Ratio) |
| derivative | risk parity |
| high-frequency trading (HFT) | stress testing |
j. To explain probable financial situations
ChatGPT can help develop strategies through scenarios that can make a strong impact on people’s finances.
Matt Crabtree, the author of the said article, praised the usefulness of ChatGPT, writing:
“„It’s like having a virtual coach that’s available 24/7.- Matt Crabtree
Example prompt:
Consider this imaginary scenario where there is a high inflation rate. Based on this supposed situation, give ways on how a single employee renting a 745-dollar-a-month apartment and earning $52,000 annually can survive this inflation.
That’s one of the main concerns in AI vs. financial advisor: the availability of artificial intelligence at anygiven time. Machines don’t sleep, remember?
Why Do I Need To See A Financial Advisor?
Consulting a financial advisor can provide numerous benefits and is a wise choice for many individuals.
Here are several reasons why people should consider seeking the guidance of a financial advisor:
1. Expertise and Knowledge
Financial advisors are trained professionals that provide valuable insights and help you make informed decisions various aspects of personal finance, including:
- investments
- retirement planning
- tax strategies
- estate planning
2. Customized Financial Planning
A financial advisor can create a personalized financial plan tailored to your:
- specific goals
- risk tolerance
- financial situation
This plan can serve as a roadmap to help you achieve your financial objectives.
3. Objective Advice
Financial advisors can offer impartial and objective advice since they are not emotionally attached to your financial decisions.
This can help prevent impulsive or emotionally-driven financial choices.
4. Investment Guidance
Choosing the right investments can be complex.
Financial advisors can recommend investment strategies that align with your goals and risk tolerance, potentially maximizing returns while minimizing risk.
5. Risk Management
They can ensure your financial plan remains resilient over time by helping you assess and manage various financial risks, including:
- market volatility
- inflation
- unexpected life events
6. Tax Efficiency
Financial advisors can help you develop tax-efficient strategies to minimize your tax liabilities, potentially saving you money in the long run.
7. Retirement Planning
Planning for retirement can be challenging.
Advisors can help you determine how much you need to save, how to invest for retirement, and when to start taking Social Security benefits.
8. Education and Awareness
They can empower you to make informed decisions independently by educating you about:
- financial concepts
- investment options
- economic trends
9. Specialized Expertise
Some financial advisors specialize in niche areas like:
- estate planning
- retirement income planning
- socially responsible investing
They can provide expertise in specific financial areas.
10. Long-Term Wealth Building
A financial advisor can help you focus on building long-term wealth and financial security, rather than getting caught up in short-term market fluctuations.
Nonetheless, not all financial advisors are the same, so it’s essential to do your due diligence when selecting one.
Look for advisors who are transparent about their:
- fees
- credentials
- fiduciary responsibilities
Meaning, they are legally obligated to act in your best interest.
AI VS. Financial Advisor
Both AI and human financial advisors have their advantages and limitations. Their roles are evolving as technology continues to advance.
CNBC reported in August 2023 that based on a survey conducted by the Washington-based Certified Financial Planner (CFP) Board, it’s OK for 31 percent of investors to follow financial advice from AI.
On the other hand, in his July 2023 LinkedIn article, Nassief Mohamed underscored the advantage of human financial advisors over AI.
Mohamed, a financial management expert and a managing director from South Africa wrote:
“„The ability of financial advisors to interpret nuanced situations, understand client’s individual circumstances, and provide personalized advice remains unparalleled.- Nassief Mohamed
As the issue on AI vs. financial advisor ensues, let’s explore the key aspects of this competition:
A. Advantages of AI Financial Advisors
1. Data Processing
AI can process vast amounts of data quickly and efficiently.
2. 24/7 Availability
AI advisors can provide assistance and recommendations around the clock. Clients can access them at any time, even in different time zones.
3. Reduced Costs
AI solutions often have lower overhead costs compared to human advisors, which can result in lower fees and expenses for clients.
4. Algorithmic Trading
AI can execute trades automatically based on predefined algorithms, which can reduce emotional biases in investment decisions.
5. Personalization
AI can tailor financial advice to individual client preferences and risk tolerance, potentially providing more personalized recommendations than human advisors.
B. Advantages of Human Financial Advisors
1. Emotional Intelligence
Human advisors can provide emotional support and guidance during market downturns. They help clients make rational decisions based on their long-term financial goals.
2. Complex Situations
In complex financial situations or estate planning, human advisors can provide a deeper level of understanding and expertise that AI may struggle to match.
3. Relationship Building
Many clients value the personal relationships they have with their advisors and appreciate the ability to discuss financial goals face-to-face.
4. Adaptability
Human advisors can adapt their strategies and advice based on the unique circumstances of each client, which can be challenging for AI to replicate fully.
C. Challenges and Concerns
1. Regulatory Compliance
In AI vs. financial advisor, both must adhere to strict regulatory guidelines. AI systems need to be transparent, auditable, and comply with data privacy laws.
2. Bias and Fairness
AI algorithms can perpetuate biases present in historical data, potentially leading to unfair or discriminatory recommendations. Ensuring fairness and ethical AI is a critical concern.
3. Technology Risk
AI systems can be vulnerable to cyberattacks and technical glitches, which can pose risks to clients’ financial assets and data.
D. Hybrid Approaches
Perhaps this is where the AI vs. financial advisor issue can achieve a middle ground.
Many financial firms are exploring hybrid models that combine AI capabilities with human expertise. This approach aims to harness the strengths of both AI and human advisors.
AI will handle routine tasks and data analysis.
Human financial advisors, on the other hand, can focus on complex financial planning, emotional support, and building client relationships.
Finance writer and investing reporter Coryanne Hicks put to test this AI vs. financial advisor issue. She discussed how AI and a financial advisor differin her August 2023 Fortune article.
Here’s her advice based on her experience:
When it comes to “background research,” use ChatGPT. For the “big questions,” talk to a human financial advisor.
People Also Ask
Which Is The Best Robo-Advisor?
Robo-advisors, aka digital investment managers, are automated, algorithm-driven financial platforms that provide investment and financial planning services to clients with minimal human intervention.
According to Motley Fool, for September 2023, here are the best robo-advisors:
| 1. SoFi | 6. Betterment |
| 2. Acorns | 7. Ally Invest |
| 3. Ellevest | 8. WealthFront |
| 4. E*TRADE | 9. Fidelity Go |
| 5. Vanguard Digital Advisor | 10. M1 Finance |
What’s The Best AI Chatbot?
For PC Magazine, the best AI chatbots for 2023 are:
| AI Chatbot | Description |
| ChatGPT | “Best for AI Text Generation” |
| Google Bard | “Best for Productivity” |
| Microsoft Bing Chat | “Best for Bing and Microsoft Edge Users” |
Should I Get A Financial Advisor In My 20s?
New York-based fintech company SmartAsset advises people in their 20s to get a financial advisor. These advisors can:
a. help them develop “strong financial habits” at an early age
b. aid them create short-term and long-term financial plans
c. encourage them to start investing and guide them along the way
d. assist them to create a budget and manage any debts they already incurred (e.g., student loans)
Final Thoughts
This juxtaposition of AI vs. financial advisor raises critical questions about the future of wealth management. It also shows its implications for investors and the general public seeking financial guidance.
AI can provide efficient data analysis and cost-effective solutions, while human advisors offer emotional intelligence, adaptability, and expertise in complex situations.
In the long run, the AI vs. financial advisor issue is more of a symbiotic relationship in which each has its strengths and weaknesses.
James Pierce
Author
Camilo Wood
Reviewer
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