It seems that every Financial Advisor I talk to these days wants to know what ChatGPT is going to do to their business? AI, and its rapid development, are sure to have a lasting impact on the financial advice industry. But does this mean an end for Financial Advisors or a new beginning?
Let's start by asking a simple question. Would you trust a chatbot to invest your retirement nest egg? The answer from everybody I have asked is a resounding NO! This means that Financial Advisors are unlikely to be replaced by the current AI engines like ChatGPT. However, the industry will undergo significant change because of AI innovation.
Before we get into that, for those that are unsure about what ChatGPT is, lets give a brief introduction. ChatGPT is a member of the generative pre-trained transformer (GPT) AI models. They are also referred to as large language models. ChatGPT is owned by a US firm called Open AI, which has received substantial investment from Microsoft. ChatGPT has been trained by reading many billions of documents from the internet. It works by predicting, based on the documents it has read, what the best next word should be. It’s hard to call that intelligence but those documents were written by smart people that knew what word was best to come next and so ChatGPT takes these words and outputs them. It provides very convincing (yet often dry and boring) answers to most questions but is not always right. You should also note that ChatGPT is just one engine. Other GPT engines include BARD (Google), Llama (Facebook) and there are many more vying for your attention.
So, if most clients wouldn’t trust their nest egg investment to ChatGPT, how could ChatGPT and similar models change the financial advice industry?
- Productivity – ChatGPT has the potential to bring huge productivity gains to the financial advice industry. One of the great functions of ChatGPT is to generate text and it does this very well. In marketing it can write ad copy, in financial advice it can generate a draft statement on life insurance requirements for a client. The output needs to be checked, but ChatGPT can take out a lot of the boring admin work for a Financial Advisor.
- Educating clients – Clients can ask ChatGPT many questions about financial investments and financial security, and get reasonable answers in most cases. The industry must encourage people not to rely on this, by developing smart affordable tools to educate people, and make sure they make the right investment decisions for their individual circumstances.
- Market performance – ChatGPT is trained on data up to and including September 2021. This means it is out of date and so has limited use to report any sort of market activity or current status. If you want to test this ask ChatGPT why “FTX crypto exchange is a good investment” and you will get a long winded answer on the upside of FTX. As we all know, FTX failed in spectacular style in in late 2022. However other generative AI engines are emerging that claim to have more up-to-date information. Google Bard is a good example of this and in the future AI engines are likely to have more current information.
- Conversational intelligence – much of the interactions between advisers and clients are verbal and in conversation. This is a relationship business after all. AI has the power to capture these conversations and interrogate them for meaning and insights. Speech to text technology has evolved rapidly in the last few years and this, coupled with generative AI, has the potential to bring massive productivity gains and to the financial advice industry. This is where FinTalkr is leading innovation, and I would encourage you to learn more about this product. FinTalkr captures conversations to automatically generate file notes and has the technology to generate ROA's and SOA’s.
- Compliance – AI can be used to measure a particular client interaction against the norm. As an example, a statement of advice for a particular client can be compared to the norm for that type of client. Expect to see more in the future on this topic as the industry develops.
These are just some of the exciting areas of development using generative tools like ChatGPT in financial advice. However there are some gotchas to be concerned about.
Some Gotcha’s
- Privacy concerns are paramount with tools such as ChatGPT. The servers for this platform run in the US so as a minimum you are pushing client data offshore. Further, and the clue is in the name, OpenAI is ‘Open’ and will use your data to further train AI engine. As a minimum, this means that client names, account numbers and tax file numbers that you upload are visible to staff at Open AI. A worse scenario is that ChatGPT could divulge them to another user in a future query. Also note that ChatGPT also suffered a data breach in March 2023 where users could see chat content from other people!! Have a quick look at the Australian privacy act or the European GDPR legislation to comprehend just how scary putting PI data into Chat CGT is. Tip: don’t put Client PI data directly into tools like ChatGPT unless you want to go to jail. Note FinTalkr has a safe mechanism for interacting with these engines.
- Beware fake news! In the generative AI business they call them hallucinations, but yes ChatGPT and another generative AI tools can give you completely wrong information. ChatGPT speaks with authority, even when it is completely wrong. Often the information will be right and well constructed but you need to check it. You need to check everything that it generates in detail. Tip: Check outputs of generative AI carefully. You will be surprised what it gets right and what it gets wrong.
- Regulation is in its infancy. Industry insiders in the US have recently called for the industry to be regulated. This regulation will come, but if history is anything go by it will take several years. Until then, the AI industry is unregulated. Earlier in the year, Italy temporarily banned the use of ChatGPT citing privacy concerns, and several companies including JP Morgan have also banned the tool. Tip: exercise caution, stay close to industry professionals that you can trust to leverage AI for your business.
Conclusion
The AI industry has made huge strides in the last 6 months and continues to evolve rapidly. The current tools including ChatGPT offer the prospect of revolutionising many industries including financial advice. In our view, the available AI today is unlikely to replace Financial Advisors. However, this technology offers many benefits to the working practises of Financial Advisors and could be a silver bullet to boosting productivity and dealing with the compliance burden.
