We Asked 6 Financial Advisors If AI Can Replace Portfolio Managers—Their Answers Might Surprise You

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Last Updated on: 7th April 2023, 01:19 am

Ever since ChatGPT was released to the public last November, the capabilities, both actual and hypothetical, have been discussed and debated ad nauseam. One such debate is whether artificial intelligence (AI) technologies, such as ChatGPT and its most recent reiteration, GPT-4, can do the work of financial advisors—either now, or sometime in the future. 

These days, a growing number of white-collar professions are on the hot seat due to AI advancements. From lawyers and accountants to engineers and doctors, virtually no job is safe from the threat of automated machines outperforming human professionals. 

In fact, it’s estimated that AI tech will replace approximately 85 million human jobs by 2025. 

This got us questioning whether financial planners, advisors, and fund managers are safe from AI takeover, or whether there’s something uniquely human about these services. To get to the bottom of it, we asked these six respected investment professionals what they think.

Jordan Taylor (Series 66 Licensed IAR)

Can GPT-4 recommend a good IRA allocation strategy?

“Maybe. Michael Piper, a well-known CPA who focuses on retirement planning, is known for saying ‘There's no perfect portfolio. There's [just] plenty of perfectly-fine portfolios.’ Rick Ferri, a famous Boglehead and Chartered Financial Analyst, frequently reminds people that, there is a perfect portfolio. We just can't know what it is in advance.

What is a good IRA allocation? One that maximizes return, increases income distributions, is tax efficient, minimizes volatility, and reduces expenses? ChatGPT, for the most part, can only regurgitate and string together ideas based on information, data, and writing that it has previously consumed. The ability of AI to innovatively problem-solve is fairly limited in the ways the public can access it. Past performance is never a guarantee of future returns. Thus, ChatGPT (and any AIs) ability to recommend any investment decision is limited to what has already been done, what could reasonably be done, and the bias ingrained in the data it is using.

Any IRA allocation or strategy should be guided by the purpose and needs of an individual or family financial plan. Currently, AI cannot produce a nuanced and detailed financial plan based on both the financial data you present and the spoken and unspoken emotions you feel about your life, money, and future. Only a human advisor currently has the ability to do that.

If you already know how to measure a good IRA allocation strategy, an AI model might be able to recommend one for you.”

Can GPT-4 replace a financial advisor? Why or why not?

“There is a possibility that AI could replace a financial advisor. Folks have been working on it for years now with no meaningful progress. So…the probability is small. And it's small for a few reasons. The math behind any good financial advice is not necessarily complex. It's often simple math. The complexity and difficulty is found in the advisor's ability to observe and compare the chosen path to every other reasonable path you could take.

Some of this is purely about data, which AI (like GPT-4) can process much faster. Whether they process the data better is debatable. Advisors also provide good financial advice based on the behavioral and psychological biases of the folks they serve. Emotions. Facial expressions. Body

language. Interpersonal signals between two partners. As of now, there is no accessible way for an AI model to capture these things, turn it into data, and weigh it against the math.

For this reason, ChatGPT, GPT-4, and any other AI model cannot replace a financial advisor. At least not yet. These resources can replace financial salespeople who are generally solving simple product fit problems by helping a user understand the pros and cons of a financial product in a situation compared to other financial products.

That said, just this week alone, a number of analysts, planners, and advisors have posted examples of AI models providing false, misleading, or incomplete math, recommendations, facts, regulations, or advice about a financial decision. Things a pro can easily catch…but someone looking for advice might not have the baseline education to even notice in the slightest.”

Will they ever be able to?

“Eventually, yes. AI models and resources will eventually have the ability to replace most financial advisors. For what it's worth, most financial advisors sell products, sell asset management, sell portfolios, or sell math-based plans. Few advisors truly engage in the holistic art and science of financial planning by diving into the behaviors and psych of the people

they serve. It will take AI products and services a long time to replace these advisors.

And there will be one final barrier. AI, as far as we know, cannot sit in a room with you, pass you a tissue, and cry with you after your partner has passed. This is something even a life insurance (sales) agent can and will do with a client. This is something that most people want out of financial advice. We don't want a solution. We want to be heard, understood, and shared with.

For many DIY investors, advances in AI technology will help them increase their ability to DIY without an advisor. It may increase the ways that people can interact with a real financial advisor. But replacement? That's a long way from even being a reality.”

• Jordan Taylor, YourCorePlan.com

Verdict 1: Current AI models fail to understand the nuances of asset allocation, and AI decision-making is hindered by analyses of past successes while lacking the critical capacity to see what changes the future might bear. 

Jenna Lofton (Certified Financial Planner)

Can OpenAI's GPT-4 manage wealth for individual clients and recommend a

good IRA allocation strategy?

“Well, it's true that GPT-4 is great at analyzing data and identifying patterns, but it lacks the human touch. Financial planning isn't just about numbers; it involves understanding a client's goals, risk tolerance, financial situation, and overall life circumstances. GPT-4 can't account

for these things and personalize recommendations accordingly.”

Can GPT-4 replace a financial advisor?

“Not really. Financial advisors bring expertise, personalized advice, and accountability to the table. While an AI tool can provide investment recommendations, it can't give the same level of personalized advice or make clients accountable for following through with a plan.

Of course, it's possible that AI technology may develop in the future to provide more personalized advice. AI tools could also offer more efficient investment management for some clients. But, at the end of the day, the human element of financial advising will always be crucial.

As for whether AI technology will ever replace financial advisors entirely, who knows.While AI tools can provide valuable insights, financial advising is about more than just numbers.

A financial advisor's ability to understand and account for a client's unique circumstances is priceless. So, the role of a financial advisor will always be essential in the financial planning industry.”

• Jenna Lofton, StockHitter.com

Verdict 2: Financial advice is about personalization, something which current AI technologies cannot provide. They lack the human touch required to hold clients accountable and compel them to action.

Emily Rassam (CFP, Senior Financial Planner)

“AI will augment the financial planning process and speed up how quickly we can interpret reports, but quality financial planners are going nowhere!

AI can't replace the other AI, which is Advisor Intelligence. The magic of the financial planning process is synthesizing all data, understanding the client's financial attitudes and personality, and developing thoughtful, personal recommendations.

I don't aim to create the most optimal advice in all areas when developing a financial plan. I strive to create an actionable plan the client is comfortable with moving forward. An AI solution might be the 100% optimal plan, but the client may not take action. 

I'd instead create an 80% optimal plan aligned to what the client will implement and incorporates all wants and needs. It's a failure of a plan to maximize ending net worth, and I'd prefer to balance in fun short-term goals that maximize the client's happiness and enjoyment of money.”

I struggle to think AI can do that work.

• Emily Rassam, Archerim

Verdict 3: “Advisor intelligence” still exceeds artificial intelligence. Financial advice isn’t about optimizing systems, it’s about creating viable ones that Ai doesn’t yet have an eye for.

Beth Rivera (Owner & CEO)

“ChatGPT can easily lead to data theft, which people should be aware of before using it as a financial advisor.

The company OpenAI can significantly influence people through ChatGPT, which has enhanced privacy concerns. Using the platform instead of financial advisors creates a vulnerability to wrong predictions and improves the chances of data theft, including *confidential financial

information*. Although the government has not given much leverage to such platforms, the curiosity of people who want to try them for financial advice can lead to significant problems.”

• Beth Rivera, BestFinancialPlanners.com

Verdict 4: Concerns regarding privacy and data theft abound for those who trust centralized AI software with their financial information over human advisors.

Kimberly Malesky (CFP, CDFA, MBA)

Can GPT-4 recommend a good IRA allocation strategy? Can GPT-4 replace a financial advisor? Why or why not. Will they ever be able to?

“Yes and no. Can the software build out a portfolio and manage it successfully, measured by market performance? Probably.

But if we are talking about managing wealth, then no. A true financial advisor (CFP holder and practitioner) spends less time on portfolio construction than retirement planning, estate planning, insurance planning and more. Simply put, the software can likely capture a majority of the quantitative component, but not the qualitative piece. 

So much of our job as an advisor, is working through the nuances of people, emotions around finances and knowing our client. The ‘know your client’ rule exists for a reason. I don't believe software can know a client, not in the true meaning of the word. When I speak to a client, spend time with them, I have a strong sense of their goals, risk tolerance, fears and more. While they may answer one way, I know it isn't true at times. They aren't lying, but they don't realize. I can then have further discussion on the topic, educate them further and find a more sensible path forward. Education and guidance are key. And every person learns differently.”

• Kimberly Malesky, Harmony Investment Management LLC

Verdict 5: AI can build a portfolio, but they can’t truly advise others how to manage theirs. Software cannot know someone at the level that a human can. 

Asher Rogovy (CIO)

“AI systems require massive amounts of data to work. For recommending an IRA allocation, this system would need plenty of examples of good and bad allocations for every potential client circumstance. For simple models using just age, income, and risk tolerance, this data might be available. But there is simply no data for the different economic and geopolitical environments that are possible. Humans rely on inductive cause-and-effect thinking to provide suitable recommendations for complex scenarios.

As for language models like ChatGPT or GPT-4, there is probably even less data. These models are built using publicly-available text, and I doubt that exists for every type of client. Because finance is rooted in numbers, it would be much more efficient to provide an AI system with specific numerical data to train than text. A language model doesn't make sense for portfolio decisions. Where a language model might be extremely useful is to help clients understand difficult financial topics. For example, it could explain the difference between a Roth IRA and Traditional IRA.

AI might be described like statistics on steroids, and statistical theory has been applied to the markets for decades. None of the legendary investors like Warren Buffett or Peter Lynch attribute statistics their success.”

• Asher Rogovy, Magnifina LLC

Verdict: Good for statistics, but AI lacks the cognitive skills and context-framing abilities of human advisors.

What Does ChatGPT Have to Say on The Matter?

While financial advisors are skeptical of the prospect of AI technologies replacing their jobs any time soon, we thought ChatGPT could have a different perspective. Below is ChatGPT’s response to the same query we posed to the financial advisors:

Source: ChatGPT (OpenAI)

In summary, ChatGPT doesn’t appear to have an opinion distinct from the financial advisors we asked. ChatGPT agrees that the human touch is an essential part of the advisory experience and that the personalized and intimate human relationships inherent to financial advising are difficult to replicate in machines.

Instead, ChatGPT appears to think that AI technologies will serve as tools for advisors in the years to come. Mathematical processes, utilitarian calculations, and assessing risk are all jobs that ChatGPT, GPT-4, and other large language models can handle. Face-to-face advice, however, is something that humans may always have an advantage in.

Verdict: Even AI itself doubts its own abilities to replace financial advisors.

What the Other Guys Say

It doesn’t seem like AI is coming for CFAs’ jobs any time soon. But don’t just take our word for it. A wide variety of articles and think pieces from respected industry authors already exist that reiterates the same opinion, including the following: 

• ChatGPT Won’t Replace Financial Advisors Yet. Here’s Why [NerdWallet]
• Will AI Replace Financial Advisors? [Finextra]
• How AI is Shaping the Advisory Landscape [Investopedia]
• 3 Reasons Why Robots Won’t Replace Financial Advisors [Provident Oak Financial]
• Will Artificial Intelligence Replace Financial Advisors? [MarketWatch]

Overall Opinion: No AI Threat (Yet) for Advisors

The six financial advisory professionals we interviewed were unanimous in their skepticism of AI systems ever replacing human financial advising. Rather, they appeared to agree, to varying extents, that AI can be used as a tool for expediting the mathematical or risk-calculating processes inherent to the profession.

But, let’s be clear, a lot can change in the AI landscape in a short period of time. 

Take, for example, Professor Bryan Caplan’s $500 bet with Matthew Bar that no AI would score an “A” on the former’s economic midterm exams before 2029. They made this bet in January of this year. As of March 21, the newest GPT model from OpenAI, GPT-4, already scored an “A” and Dr. Caplan has admitted that he lost. 

This wasn’t a reckless bet, it was an informed calculation by a leading economist regarding the limitations of AI technologies as they existed only three months ago. But the advancements Dr. Caplan assumed would take at least seven years, took only three months for AI to realize.

In short, we should never be too confident when it comes to AI. It may be the case that ChatGPT and GPT-4 can’t yet fully replace human financial advisors, but the day may come—perhaps sooner than we expect—when they can.

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Note: Guest commentary has been lightly edited to improve readability where required.