Financial Advice and Artificial Intelligence: Bridging the Gap
Financial advice is a vital component of managing one’s finances, yet many individuals face significant barriers to accessing this service. Artificial intelligence (AI) has the potential to bridge this gap, making financial advice more accessible and affordable for a broader range of people.
A Growing Adoption of AI in Financial Services
Financial institutions and advisers are increasingly embracing AI, with 75% of firms already using it and 10% more planning to adopt it over the next three years. AI is being used in various ways, including automating tasks, analyzing data, and providing personalized advice.
- Machine learning (ML) and natural language processing (NLP) are traditional forms of AI used in finance, but generative AI (genAI) is a newer phenomenon.
- GenAI is built on probabilistic models, which incorporate a degree of uncertainty, making it more prone to “hallucinating” or providing incorrect information.
- AI is being used to improve efficiency, such as summarizing documents, drafting suitability reports, and identifying vulnerable clients.
Challenges and Opportunities
While AI has the potential to bridge the advice gap, there are significant challenges to overcome. AI-generated financial advice can be inaccurate, and there is a need for regulatory oversight to protect consumers.
“AI is already transforming the financial services landscape, and as it continues to evolve, it will fundamentally reshape how consumers interact with their money and financial products,” says Phil Turnpenny, policy executive at The Investing and Saving Alliance (TISA).
The Advice Gap: A Barrier to Financial Inclusion
Financial advisers often have minimum asset size requirements, which can create an age disparity. According to Schroders’ financial adviser survey 2024, 74% of advisers will only advise clients with a minimum of £50,000 in assets, with 51% only advising clients with at least £100,000, and 24% only advising clients with more than £200,000.
| Asset Size | Percentage of Advisers |
|---|---|
| £0 – £49,999 | 22% |
| £50,000 – £99,999 | 26% |
| £100,000 – £199,999 | 25% |
| £200,000+ | 27% |
AI-Powered Financial Advice: A Solution to the Advice Gap
AI-powered financial advice can help bridge the advice gap by making financial advice more accessible and affordable. Many financial institutions are already using AI to improve efficiency, such as summarizing documents and drafting suitability reports.
- Robo-advisers, such as InvestEngine and eToro’s Smart Portfolios, offer ready-made portfolios based on risk appetite and AI-led portfolio management.
- Octopus Money is setting out to democratize financial advice using AI, by making a holistic service more widely available.
- Octopus Money’s platform uses a complex algorithm to generate recommendations, ensuring that the advice is consistent, free of bias, and scalable.
Accuracy and Regulation
While AI-powered financial advice can be accurate, it’s essential to ensure that the source is bespoke and industry-specific. Unscheduled generative AI platforms, such as ChatGPT, may not be accurate enough to be relied upon.
“Not all AI is created equal,” says Phil Turnpenny. “Search engine-based AI tools are increasingly being used as a source of financial advice – often without oversight, transparency, or accountability.”
The Need for Regulation
Industry bodies, such as TISA, are campaigning for regulatory oversight of AI-generated financial advice to protect consumers. There is a need to draw a clear line between risky, unregulated tools and those that are built with consumer protection at their core.
- TISA is advocating for the Financial Conduct Authority and His Majesty’s Treasury to bring genAI search engines within the purview of financial regulation.
- The organization believes that properly designed and regulated AI has the power to improve financial access and outcomes, especially for underserved groups.
The Future of Financial Advice
As AI continues to evolve, it’s essential to ensure that financial advice is accurate, accessible, and affordable for all. By harnessing the power of AI, we can bridge the advice gap and create a more inclusive financial system.
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