Commentary: Don't be fooled by GenAI financial advisers

CNA

2 days ago

NEW YORK: The wealth management industry is prepared to court its newest potential clients: Gen Z. Instead of trotting out older professionals with decades of experience, companies are utilising generative AI to develop digital assistants.
These new 'experts' even come with the ability to use slang to appear relatable and relevant to their target demographic.
Embracing the newest technology is yet another cultural shift in the financial services landscape that disrupts some of the norms in the industry. We've seen it with the development of robo-advisers and the rise of ' finfluencers '.
Cue the traditionalists turning their noses up at how far the financial advice field has strayed from its origins. After all, future iterations of GenAI really could accelerate the long-prophesied doomsday for flesh-and-blood financial planners.
IMPROVING SOFT SKILLS
But now isn't the time for humans to declare defeat. Until advanced versions of the technology arrive, people should be doubling down on the one significant advantage they have against their digital counterparts: soft skills.
Providing investing advice is only one facet of the job. The role is part therapist, accountability coach and teacher. Real people can push back against panicked requests to sell in a turbulent market instead of simply executing an order.
A person understands how and when to ask more questions to determine the reason behind a request for conservative investments such as bonds, even at a young age when it's detrimental to be overly cautious.
The problem for many young adults is that accessing this more holistic approach, which goes beyond stats and data, is costly.
Financial advisers usually get paid in one of two ways: assets under management (AUM) – a percentage of a customer's investments each year – or a flat-rate fee.
The latter varies based on the level of service. A comprehensive financial plan can cost thousands of dollars. AUM ranges from 0.25 per cent to 1.5 per cent, with some advisers reducing the cost as the size of a portfolio grows.
LOWER BARRIERS TO ENTRY
The greater barrier to entry is the possible minimum investable assets requirement, which often hovers between US$500,000 and US$1 million. Fifteen years ago, these factors prohibited access for millennials.
This reality paved the way for cost-effective alternatives in the form of robo-advisers, such as Betterment and Wealthfront, with significantly lower AUM and no asset minimums. The companies sent shockwaves through the industry as many wondered if machines would finally usurp man.
As years passed, it became obvious the two could have a symbiotic relationship. In fact, it turned out millennials ultimately did crave some soft skills, which led to platforms launching versions that gave customers access to humans.
Instead of cratering the industry, the robo-advisers forced their living counterparts to compete in different ways. Some diversified their services, including offering virtual counsel, and others targeted less-affluent clientele.
While it's easy for the regular consumer to conflate a robo-adviser with GenAI, the two are not the same. The latter is built on language-learning models instead of the mathematical-centric AI models and machine-learning algorithms that provide the underpinnings for companies like Betterment and Wealthfront.
Gen Z investors may be more attracted to GenAI because it can simulate how people speak and even look. Plus, the cohort is more primed to be early adopters of the tool. They've grown used to receiving free, one-size-fits-all money guidance online.
FALLIBLE TECHNOLOGY
A stunning 77 per cent of teens and 20-somethings use online platforms and social media to answer their money questions, according to a 2025 Credit Karma survey.
But they should remember that the technology's modern iteration is new and, like humans, fallible, which results in inaccurate or misleading information known as 'hallucinations.'
Even with all these issues to resolve, companies are bullish on GenAI's ability to spit out 24/7 guidance and woo new clients.
Arta Finance, a wealth management startup, is at the forefront of providing an AI financial adviser with Arta AI. The 'AI agents', as the company refers to its investment planner, product specialist, and research analyst offerings, can respond to queries by voice or text (and do so in the aforementioned generationally-appropriate slang).
Arta is only available to accredited investors and offers access to human professionals, but the company plans to make Arta AI available to other financial services companies. A move that could give all kinds of retail investors access to its product.
It's likely that plenty of platforms won't wait to license the service and instead will develop their own.
A HUGE PITFALL
Robinhood Markets plans to launch Robinhood Cortex, an AI-powered digital research assistant, this fall. The app offers a variety of investing options, including Robinhood Strategies, the company's robo-adviser.
Unlike Arta Finance's offering of real-life advisers alongside its AI agents, Robinhood customers can currently only access a support team, which is mostly available to handle administrative questions.
And that's a huge pitfall.
Companies that don't prioritise establishing relationships with real professionals can cause retail investors to panic in turbulent times, especially novice ones who are able to access advanced opportunities, such as trading options.
Granting inexperienced customers access to higher-level investing products without proper support can be financially, mentally and emotionally ruinous. Robinhood should know.
In 2020, it paid the largest Financial Industry Regulatory Authority fine in history – US$70 million – for its technical outages, lack of due diligence before approving customers to trade options and sending of misleading information.