AI is coming to financial planning

Viral sensation ChatGPT and other generative artificial intelligence tools are making their presence felt in every field of human endeavour.

As generative AI and machine learning kick into high gear, industries across the board are scrambling to adopt and integrate ChatGPT and other large language models (LLMs) into their workflows to increase speed and efficiency.

One such domain is the financial services industry. Perhaps one of the most conservative of all fields, it is now beginning to warm to the potential of generative AI. This could have meaningful implications for investors and the broader financial planning industry.

Behemoths on the bandwagon

There is no better testament to the growing impact of generative AI than global investment banks such as JP Morgan, Morgan Stanley and Goldman Sachs recognizing the potential of AI and embracing the technology wholeheartedly.

These organizations are leveraging new AI models to develop sophisticated tools that help financial advisors respond to client queries and make personalized investment decisions.

While a rapidly shrinking pool of skeptics often points the wrong way, experts say these powerful AI tools will continue to become more sophisticated and are poised to revolutionize the financial planning landscape.

Comes to ChatGPT

Although the role of generative AI in the financial industry is still in its infancy, there are experiments and studies that provide evidence of the technology’s true potential.

For example, JPMorgan is developing an AI service similar to ChatGPT, called IndexGPT, to show trademark filings, which can select securities and investment advice.

According to the filing, IndexGPT plans to use AI-powered cloud computing software that can “pick a selection of financial securities and financial assets” and invest “according to customer needs.”

Morgan Stanley is currently testing a chatbot powered by OpenAI technology for its 16,000 financial advisors.

Like ChatGPT, this tool will provide instant answers to consultants’ queries. However, it will only generate responses from Morgan Stanley’s approximately 100,000 vetted research pieces, reducing the possibility of errors.

AI may be some way away from manipulating money independently, but a study by two South Korean academics shows that the technology has outperformed random selection in creating diversified portfolios.

As an LLM, ChatGPT has the ability to capture special aspects of the market that human investors cannot, making it a valuable tool for managing portfolios, the study said.

It notes that ChatGPT can identify intangible relationships between assets, particularly in terms of their disparity across asset classes, which helps achieve better diversification than the average portfolio.

In another test, a simulated portfolio of stocks selected by ChatGPT outperformed several high-performing investment funds in the UK.

As of August 25, the ChatGPT fund was up 9.63 per cent, comprehensively outperforming the leading UK funds which had a combined gain of 0.43 per cent for the same period.

While the fund’s performance continues, it does not yet have access to real-time information.

“The next step is to build a portfolio that constantly monitors the market and constantly changes the portfolio,” says John Ostler, chief executive of, the company behind the study.

New AI tools are more efficient at processing and analyzing large amounts of data to find patterns.

“Generative AI has the potential to support and enhance many aspects of financial planning if it has access to the most recent and relevant financial data”, says Mr Ostler.

Notably, AI is better than Monte Carlo simulation; while the The latter use models built by experts to predict probabilities, the former create their own models to predict future outcomes, adds Mr. Ostler.

When it comes to the stock market, “the lack of bias in AI can give it an edge, (and thus) be a real game changer in the future”, he says.

Michael Zagari, an early adopter of ChatGPT, is an associate portfolio manager with Montreal, Canada-based Mandeville Private Client and Zagari + Simpson.

“This tool helps me indicate where I should invest more time researching specific data points over time,” says Mr. Zagari, who uses ChatGPT to understand investment trends.

“The trade-off is the time lag in the data I’m getting,” he noted, referring to ChatGPT’s main drawback that its data set is limited to 2021 and has no sense of events since then.

See: AI Revolution: What Does Our Future Look Like?

The AI ​​Revolution: What Does Our Future Look Like?

The AI ​​Revolution: What Does Our Future Look Like?

AI and financial planning

More recently, AI models have become highly sophisticated in making predictions and working with different scenarios to test economic outcomes.

Although they cannot predict the future – yet – predictive AI tools can play out many different scenarios for investors, providing them with the best possible outcome.

“Using AI can bring huge cost and efficiency benefits because it can quickly and accurately search large amounts of data,” says Mr Ostler. “After the hype around ChatGPT dies down a bit, simple automation tasks like this could be the biggest impact of AI.”

ChatGTP is a valuable asset that supports advisors, not replaces them, Mr. Zagari says.

“I’m not sure people will fully trust the advice they get from AI, which is no different than trusting their self-driving car with Autopilot drive,” he says.

That may change in the coming years. The continued improvement in the quality of AI’s predictions has led some to believe that, in the not-so-distant future, the technology could make better decisions than humans.

“Even the best finance professionals have inherent biases that affect their judgment, and AI may have an opportunity to remove those from their processes,” says Mr Ostler.

Still, AI won’t make anyone rich and will probably show market/index returns, which is great from a pricing perspective, says Mr. Zagari.

“If you’re taking on more risk in your retirement plan because investors aren’t willing to put in more after-tax savings, financial goals will fall short.”

Some financial industry experts prefer to see generative AI as a co-pilot that can help in some areas of a financial advisor’s job.

Using AI can have huge cost and efficiency benefits because it can quickly and accurately search large amounts of data.

John Ostler, CEO of

GPT-4, a more advanced version of ChatGPT, can analyze large amounts of data, analyze multiple variables, and provide probabilistic scenarios.

Although its prowess doesn’t extend to crystal-ball predictions, “it can help create hyper-personalized strategies” drawn from specific inputs, says Dave Mazza, chief strategy officer at Roundhill Investments, which has begun integrating generative AI. in its multiple workflows to take advantage of key benefits such as accuracy, speed and cost-effectiveness.

Over time, generative AI could become more advanced and adapt to break down more complex areas of financial planning and “provide more personalized advice”, says Mr Mazza.

Potential disadvantages

Like all emerging technologies, generative AI has limitations and requires additional refinement. Potential risks include data privacy and security, ethical application of AI, and algorithmic bias, among others.

“If AI is managing hundreds of thousands of dollars in investments, one small mistake or misunderstanding can destroy the portfolio,” warns Mr Ostler.

Some of these risks can be mitigated with proper design and oversight, Mr. Mazza says, acknowledging that “the role of advisors can shift toward interpreting generative AI output and providing more personalized advice.”

Another issue is responsibility. Who is ultimately responsible for the advice given?

“I assume it will remain the financial advisor’s responsibility, just as it is the advisor’s responsibility today to monitor the computer-generated information he or she provides,” says John Reckenthaler, director of research at Morningstar Research Services..

AI can give financial advisors an edge

As things stand, ChatGPT and other LLMs in their current iterations are a helpful tool. “ChatGTP serves as a complement to my research and not a replacement, which is similar to how investors should view the technology,” says Mr Zagari.

In its role as a personal assistant, AI can perform many mundane tasks for advisors, allowing them to focus on financial planning and other areas of client engagement.

As technology advances enough to understand the more complex aspects of financial planning, Mr. Reckenthaler is confident that it will give an edge to financial advisors who are able to effectively integrate AI technology into their workflows.

“In many industries, generative AI has the potential to make even novices act like power-users,” notes Mr. Mazza, adding that “in the near future, advisors who are not adopting AI may gain a leg up” .

Updated: September 08, 2023, 6:02 PM

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