The excitement surrounding artificial intelligence (AI) continues to grow, and along with it, the discussion regarding which types of jobs could be automated by AI. According to a recent piece of research, financial advisers are not at risk.
In a report titled “Artificial Intelligence Won’t Replace Financial Advisors,” which was released by Morningstar Inc. in Chicago, a company that provides investment services, the authors say that the technology is unlikely to replace financial advisors since it is unable to win confidence from humans. It also makes comparisons between AI and other breakthrough movements that have been overhyped in the past.
Experts in technology and finance recognize the potential of artificial intelligence (AI), but they plead for a more controlled conversation surrounding the developing technology.
“This article is a great example of our mission to ground investors in reality and be contrarian when called for,” said Lee Davidson, chief analytics officer for Morningstar. “In this case, we think that there is incredible potential for generative AI but also significant hurdles it needs to overcome to fulfill its full potential when it comes to handling the day-to-day responsibilities of financial advisers.”
In this study, artificial intelligence (AI) is defined as the endeavour to “merge person and machine” using mathematical models and computer programs. However, what truly sets it apart as a revolutionary technology is its capacity to generate knowledge on its own. According to Davidson, artificial intelligence is the first technology to have the capability of working in a spontaneous “ad hoc” manner. Previous technological breakthroughs helped human workers with rote tasks.
It begins to enter the improvisational space. It’s all about content generation, which is why we worry about outdated intonations and other such things. It’s because it is creating new content, new insights, it’s improvising. It is learning on the fly,” he said.
Davidson, however, stated that wealth advisers have no reason to despair.
“This will definitely push the limits of where automation can be applied to new categories of jobs and new casual tasks,” he stated. However, this does not imply that jobs will disappear.
The Morningstar paper refuted the notion that AI will replace human employees by citing historical precedent and human nature. Specifically, it highlighted robo-advisors, a former threat to wealth advisers, and cited the “trust hurdle,” or the reluctance of individuals to adopt new technologies that have not yet proven to be wholly trustworthy.
Robo-advisors, which provide automated investment advice to users based on their portfolio, rose to prominence in the middle of the 2010s. According to the paper, robo-advisor companies such as Wealthfront and Betterment raised hundreds of millions of dollars from investors who believed the technology would replace financial advisers. Nonetheless, large banks and brokerage firms ultimately acquired the majority of robo-advisor firms, thereby becoming more efficient.
The paper stated, “Robo-advisors were the most recent David to attack Goliath.” Instead of killing Goliath, it appears that David went to work for him.
In addition, the report drew parallels between AI and autonomous vehicles. The paper cited the advent of autonomous driving, during which the co-founder of Lyft, John Zimmer, argued that such vehicles would replace the majority of his employees by 2021.
Bill Gurley, an early investor in Uber and venture capitalist, noted that autonomous vehicles have failed to make passengers feel secure. Due to the fact that the vehicles have not proven to be 100% reliable in challenging conditions such as snow or rain.
The paper stated that, similar to self-driving vehicles, AI is unlikely to inspire consumer trust. Because the technology requires knowledge of financial planning, estate planning, tax planning, and insurance in order to effectively assist clients in answering broader financial questions and assisting with asset allocation.
David Trainer, CEO of New Constructs, an investment firm that utilizes artificial intelligence, and unaffiliated with the paper, stated, “People must have absolute faith that the machine is superior to a human.” “The problem with AI is that it is almost always a black capsule…If you know that something works 97% of the time, that doesn’t provide much solace because you never know where the remaining 3% will manifest.
The Morningstar paper is not the first time that financial experts have questioned the effectiveness of AI in financial planning.
During a recent appearance on Yahoo Finance Live, Jerry Golden from Golden Retirement voiced his concerns that AI is not yet up to par. Specifically, he stated that AI applications cannot analyze market performance in “real time” and ChatGPT 4 is only trained on data through 2021. In addition, he stated that AI is unable to interact with actual clients and tailor a plan to their requirements.
“They provide a very beneficial starting point for what a person should consider. “However, they are a long way from the final answer in terms of the plan you may adopt,” Golden stated.
Nonetheless, some experts argue that AI is unlike previous fads such as NFTs and autonomous vehicles. Davidson, who disagrees with his company’s paper, stated that AI stands out because of its accessibility. He noted that ChatGPT was the fastest-growing web application in United States history, whereas robo-advisors were utilized by only a select few.
“These instruments are now considerably more accessible. They are simpler to employ. They are simpler to comprehend and more useful. I believe that is evident to everyone.”
Scott Likens, global AI/US innovation director for PWC and unaffiliated with the study, concurred with Davidson. Although AI was unlikely to completely replace wealth advisers, he predicted that it would transform their industry. For instance, he said AI could make advisers more efficient, able to communicate with more clients at a time.
“This AI surge is having a much broader impact than anticipated. “Therefore, it is imperative that financial advisors think about this in a responsible manner,” he explained. I believe that aspects of what they do every day will unquestionably alter the way they interact with customers.