The AI revolution is here

“Financial advisors may soon have a new tool in their arsenal for providing top-notch service to clients — a cutting-edge language model known as ChatGPT.”

That is how ChatGPT, a new chatbot created by artificial intelligence research firm OpenAI, responded to a request to write an introduction for an InvestmentNews article about itself. The software is “capable of understanding and responding to natural language input” and “has the potential to automate many of the tedious and time-consuming tasks that advisors currently handle manually, allowing them to focus on the aspects of their job that truly require a human touch,” according to, well, ChatGPT.

ChatGPT took the internet by storm after launching on Nov. 30, surpassing 1 million users in just a few days, according to The Wall Street Journal. Students have used it for help with homework or college entrance exams, programmers have used it to debug lines of code, and one woman asked the AI to write a letter to her son explaining that Santa isn’t real.

Just over one month after launching ChatGPT, Microsoft reportedly wants to invest an additional $10 billion into OpenAI — it previously invested $1 billion in 2019 — in a round of fundraising that would value the company at $29 billion, Semafor reported.

While the company doesn’t yet earn revenue, the commercial applications are obvious. Microsoft sees an opportunity to build a new search engine to rival Google while also offering the technology as an incentive to lure companies to its cloud computing away from Amazon Web Services. Some venture capital investors are already implementing it into their investing workflows, while actor Ryan Reynolds used the AI to write an advertisement for the mobile service company he part-owns. And OpenAI is now piloting a new version of the software, ChatGPT Professional, to give companies exclusive access to test how the software can used for business.

Steve Sanduski, a financial advisor business coach and co-founder of ROL Advisor, has experimented with ChatGPT to explore if and how the technology could be useful for financial advisors. There is opportunity to automate customer service replies, personalize recommendations for clients, generate new engagement ideas and even use it to write drafts of marketing content like social media, email and blog posts, he said.

“One of the more intriguing potential applications of AI is writing background briefs,” Sanduski said in an email. “Eventually, AI could pull all the public data about a person (and perhaps some nonpublic data, too) and create a background brief about the person. But not just an ordinary data dump about a person. Rather, the AI could synthesize the data and generate insights about the person and create recommendations or even a script on the most effective way to communicate.”

AI-POWERED ADVICE

But could ChatGPT be used to give financial advice? InvestmentNews fed the algorithm questions collected from friends and family to see how the AI would stack up.

For example, Alex, a 35-year-old who feels he is starting to make real money as a real estate agent in California, is worried that he hasn’t saved enough compared to others his age who began their careers earlier. He asked ChatGPT which investment instruments are best for him to catch up, even if it means taking on more risk.

“It’s never too late to start investing, and with a long-term time horizon, you may be able to make up for lost time. That being said, it is true that starting earlier can give you a significant advantage when it comes to growing your wealth over time,” the AI responded within seconds before suggesting strategies that included a diversified portfolio of assets that has a higher potential for growth, real estate, and investing in a small business or startup. ChatGPT also recommended maintaining an emergency savings fund and paying down debt to protect against downside.

Looking for something more specific, Alex followed by asking ChatGPT for a specific investment he could make today with $10,000. The AI clarified that it is not able to provide specific advice and recommended consulting a financial advisor, but did offer “low-cost index funds, which provide broad-based exposure to different market segments such as U.S. large cap, U.S. small cap, international, emerging markets and bonds” as one possible strategy. ChatGPT also suggested exploring robo-advisors as a low-cost option and advised against investing everything in a single stock.

The content is good, though investing in a small business is probably too risky for someone just getting started, said Tyler Whitehouse, director of financial planning at RMR Wealth Builders, who reviewed ChatGPT’s answers without knowing they were recommended by an AI engine.

“For computer-generated answers, they’re not awful. A tweak with the asset classes would be prudent,” Whitehouse said.

Haley Tolitsky, a financial planner with Cooke Capital who reviewed ChatGPT’s answers to questions about choosing the right retirement vehicle for a person earning six figures without a 401(k) match from their employer, agreed that the AI gave accurate information for someone just getting started with investing, especially compared to what people might hear from so-called “finfluencers” on platforms like TikTok.

However, both advisors said the answers were too vague to be actionable for most investors.

“It provided great information, but [investing] is so personalized,” Tolitsky said, pointing out that ChatGPT detailed the differences between 401(k)s, IRAs and Roth IRAs, but fell short of providing an actual recommendation. “[AI] can’t always tell you what you should do. An advisor can take a better look at your overall picture and help make better decisions.”

The answers were so vague that David Foster, the founder of Gateway Wealth Management, immediately suspected they were generated by ChatGPT. In his experiments with the tool, the more specific the question asked, the worse ChatGPT was at providing helpful advice.

[More: AI for wealth management: Advisors must evolve to survive in the AI era]

It would be more useful working behind the scenes, automating administrative tasks or finding information for an advisor who knows exactly what to ask for, Foster said. He also sees potential for AI to enhance marketing efforts or update the other tools he relies on. For example, what if a financial planning software could use AI to automatically update its rules and assumptions with everything contained in SECURE 2.0?

“I think this stuff is pretty awesome. I have no doubt that I will use some version of this in the future,” Foster said.

A NEW WAVE OF AI INNOVATION

Advisors could start seeing technology like ChatGPT in their practices sooner than later. It’s just one example of “Generative AI,” which The New York Times dubbed “Silicon Valley’s new craze.” Built to create new content rather than analyze existing data sets, Generative AI was one of the few bright spots for tech fundraising in a year where venture capitalists tightened their wallets in response to plunging markets. As previously buzzy ventures in the metaverse or cryptocurrency struggled — or went bankrupt — Stability AI closed a $101 million round for its image generation engine in November. Jasper, a text creation tool, closed a $125 million round the same month.

The surge in new AI is coinciding with macroeconomic conditions that are forcing companies across industries, including financial services, to look for ways to protect margins by increasing efficiency, said Michael Loukas, principal and CEO of Truemark Investments, a firm that creates ETFs to invest in AI companies.  

“We have a workforce shortage but companies are still laying [employees] off or having hiring freezes,” Loukas said. “For the first time in human history, all of the core components have lined up to make AI powerful — the algorithms, the processing and the data.”

AUGMENTING, NOT REPLACING

ChatGPT’s mainstream success has ignited a wave of concerns about ethics, legality and security concerns related to the technology, as well as which professions are most threatened. Unlike the initial wave of robo-advisors, advisors are more excited about AI’s capabilities to improve their practice than they are worried about it replacing them. In fact, ChatGPT will even acknowledge its inability to replace human advisors, if you ask it.

“It’s really cool to see how much our tech changes year after year, especially in the fintech space. God knows what’s next,” Tolitsky said. “You often hear about robos and different technologies that it might be the end of financial advice as a career path, but i think these resources are really great. They can’t replace one-on-one interactions.”

However, that doesn’t mean AI won’t cause meaningful change in the industry. A peer-reviewed study published in 2021 found that people are capable of forming a human-level bond with a chatbot program, casting doubt on the refrain that “people will always want a relationship with a human advisor.” Some people could even prefer a computer over an industry with a well-documented history of conflicting interests and defrauding investors.

Even if it doesn’t completely replace advisors, AI could accelerate the commoditization of basic functions like investment management or basic planning.  Advisors who can go beyond financial advice and create a shared emotional connection with clients can create a moat that AI cannot cross, Sanduski said.

“Eventually, the rise of AI will put average advisors out of business and force the remaining advisors to dramatically up their game by providing insights and expertise that can only be formulated in the human mind and delivered by an empathetic person,” Sanduski said. “Going forward, a premium will be placed on advisors who can create new knowledge and novel insights that are delivered in an engaging way, and this will raise the talent and skill level bar for new advisors entering the business.”

Related Topics: Cooke Capital, Gateway Wealth Management, OpenAI, RMR Wealth Builders, Truemark Investments