CAN AI REPLACE A TRUSTED FINANCIAL ADVISER?
▶ Technology has strengths, weaknesses and potential risks for retail investors, experts tell Deepthi Nair
ChatGPT is all the rage today. The artificial intelligence-powered chatbot created by Microsoft-backed OpenAI generates human-like answers to simple prompts within seconds and has already taken several industries by storm.
However, its surging popularity in the finance industry has raised the question of whether generative AI could replace financial advisers.
ChatGPT offers retail investors access to the technology, thereby promoting financial inclusion.
But it has prompted a polarising discussion on the technology’s strengths, weaknesses and potential risks.
“I have used ChatGPT and AutoGPT to seek investment advice,” says Smita Malwe, a public relations and communication consultant in Dubai.
“However, ChatGPT responded that it cannot provide real-time information or specific investment recommendations and can instead provide general information, such as how I could invest in index funds, dividend-focused funds or exchange-traded funds if I am looking for minimum 5 per cent to 8 per cent return on my investment,” she adds.
“Now, this response is too generic and only an expert human adviser can evaluate the specific goals, interpret and analyse the real scenarios and suggest the specific funds or modes of investment.”
An individual’s financial situation may also change, requiring adjustments to the original investment plan, Ms Malwe says.
In such a scenario, she would prefer relying on an expert in the domain to keep her informed and alter the plan if needed, rather than a virtual financial adviser or an AI bot.
Generative AI can produce various kinds of data, including audio, code, images, text, simulations, 3D objects and videos. While it takes cues from existing data, it is also capable of generating new and unexpected outputs, according to GenerativeAI.net.
The global generative AI market is expected to reach $188.62 billion by 2032 – growing at an annual rate of more than 36 per cent from $8.65 billion last year, according to The Brainy Insights.
ChatGPT was launched in November by OpenAI – the world’s most valuable generative AI start-up – and quickly gained popularity.
In January, Microsoft announced the third phase of its long-term partnership with OpenAI through a new multiyear, multibillion-dollar investment, worth a reported $10 billion.
While AI can provide strong recommendations, it should be seen as a tool in an investor’s toolbox rather than a stand-alone decision-maker, according to Sharib Suhail, media officer for a business set-up company in Dubai.
He has used ChatGPT for investment advice and another generative AI tool, Finchat, to invest with robo-adviser Sarwa.
“Investment decisions are multifaceted and often require a nuanced understanding of complex data and softer aspects such as sociopolitical implications, ethical considerations and individual risk tolerance. In other words, AI should robustly complement human judgment rather than [be] a replacement,” he says.
“As we move ahead in this exciting era of technology, it will be essential to balance leveraging AI capabilities and maintaining human oversight, ensuring that our financial decisions are both data-driven and deeply human.”
AI can offer investment ideas, but not be used for investment decisions, according to Adi Sinha, founder of OpenTap, a growth management consulting company, and a financial literacy campaigner.
“Investing is extremely personal to you as an individual and is based on things like risk tolerance, time horizon and investment goals,” he says. “AI is nowhere close to summarising your entire sense of being into a few lines of code, and as such should absolutely not be allowed to make investment decisions for you.”
Nemo, a recently launched investment brand in the UAE, has introduced NemoAI, a GPT-powered financial assistant to help new investors conquer their fears and develop market knowledge.
“GPT or Generative Pretrained Transformer, the technology that underpins AI, has an ability to understand the intent of your questions and specifically answer them,” says Nick Scott, head of product development at Nemo.
“It’s similar to having a conversation with a human [being]. NemoAI is trained on hundreds of millions of data points and uses that knowledge to write back on almost any topic you ask.”
NemoAI can handle both general and specific questions about investing, companies and stock performance.
It can sift through huge amounts of information, financial data, opinions, news and provide a curated summary of why a stock could or could not be a great investment.
“The tool allows people who don’t know too much about finance and investing to increase their knowledge quickly in a way that feels natural,” Mr Scott says.
Both Nemo and NemoAI are free to use. The platform, which already has hundreds of users in the UAE, offers stock trading commission-free. The minimum deposit to start trading with Nemo is $3.
NemoAI is a great tool for those who cannot afford a human financial adviser, according to Mr Scott.
“NemoAI isn’t trying to replace or replicate personal financial advisers. It’s not there to make decisions on your behalf. Instead, it’s trying to give balanced responses with education and knowledge so that you can make a decision for yourself,” he says.
“Many financial advisers are starting to use GPT themselves to increase their knowledge and do tasks faster. Those that can afford a financial adviser will continue and probably always want that level of human interaction.”
Explaining the difference between NemoAI and a robo-adviser, he says the latter uses a relatively small number of data points to try to match a person with a pre-defined investment strategy.
But they’re often designed to give advice and try to make decisions on your behalf whereas NemoAI can help users make more informed decisions themselves, Mr Scott says.
FinaMaze, an ADGM-regulated hybrid asset manager, offers investment advice based on a combination of human experience and machine learning outcomes.
The platform provides algorithm-powered investment solutions across asset classes such as stocks, fixed income, commodities, private equity and the metaverse.
Under the hybrid approach, human beings lead the charge at two levels – client relationship management and building strategies and tactical portfolios, according to Mehdi Fichtali, founding partner and chief executive of FinaMaze.
“AI is much better in scouting for different market trends and summarising them for human advisers,” he says.
“It also personalises different portfolios to be aligned with each individual’s risk appetite. The personalisation of strategies requires high computational power and needs 24/7 supervision of risks, given market volatility. AI also takes care of automated execution of trades in the market.”
FinaMaze recently created AI characters to deliver financial market news to customers twice a month on average.
Artificial intelligence promotes financial inclusion because of its cost-effectiveness, Mr Fichtali says.
“We can bring private banking grade advice or personalisation to the masses. You no longer need millions of dollars to have a dedicated personal adviser. It can be done by AI at 1,000th of the cost.”
Othmane Mikou, founder of Cognition Project Management Services, a UAE-based independent consultancy, has been a FinaMaze customer for more than six months.
He has invested in portfolios that offer him exposure to GCC and international markets across asset classes such as commodities, stock markets and fixed income.
“These portfolios incorporate dynamic rebalancing and protective risk controls without any participation from my side,” Mr Mikou says.
“AI-driven hybrid platforms have the potential to disrupt the traditional asset management industry by providing distinctive benefits such as data-driven insights and portfolio optimisation.”
Many financial advisers are starting to use GPT themselves to increase their knowledge and do tasks faster
NICK SCOTT
Head of product development at Nemo