AI Has a Limited Role in Investing — That Could Change
While younger investors have taken a growing interest in artificial intelligence, advisors are cautioning individuals against using AI. They’ll use a do-it-yourself approach in hopes of gaining an investing edge.
AI can be a great educational tool for investors wanting to learn more about specific sectors or the historical performance of certain investments. However, it’s not sophisticated enough to be a stock-picker or means of developing a diversified investment portfolio for the average retail investor.
AI can be “great for pulling historical data, or coming up with investment or economic conclusions formed with a body of empirical research,” Kenneth Chavis IV, a senior wealth counselor at Versant Capital Management, told VettaFi.
However, he wouldn’t recommend that retail investors rely on AI to pick stocks or structure their portfolios. Those tasks depend “on your goals, tax situation, and (risk) comfort level.”
“It could be helpful from a learning standpoint. I would say it’s part of the education process. It can play a role,” Chavis said.
“I would caution people from excessively using or relying on it for investment decisions or strategy. There’s a possibility that the information you’re getting is over a limited scope, as far as timeframe or market cycles,” he added.
Young Investors Are More Open to AI Advisors
Aaron Clarke, a wealth advisor at Gainesville, Virginia-based Heritage Financial, noted a stark generational divide among investors about their interest level in AI.
He found that the 30-and-under investor cohort, in particular, is more likely to ask questions about whether AI can be incorporated into investment research. They also want to know how it can generally be used within the wealth management space.
Conversely, “Among the 70-plus crowd (the sentiment is), ‘How is this going to influence what I’m doing? Because I don’t want anything to do with it.’ So, it’s pretty polarized,” Clarke told VettaFi.
AI tools, like ChatGPT, could help DIY investors analyze historical performance data. However, “When you get to the application, that’s not a way to go about building a portfolio,” he added.
Even within the robo-advisor marketplace, he said that many so-called AI investment solutions focus more on financial planning functions. Those can include “creating a systemized process for someone to be investing regularly through savings, having a standard rebalancing schedule, diversifying their portfolio, and keeping costs low,” Clarke explained.
AI Investing Limitations
Tyler Cloherty, managing director at Casey Quirk, which advises asset and wealth management firms, shared that AI tools like ChatGPT offer a way for the retail investor community to “get some foundational knowledge on industries or sectors” they have an investment interest in. However, he noted that he isn’t sure how old the information ChatGPT uses is.
Versant’s Chavis noted that his firm is looking at ways to use AI to help advisors write blog posts and other messaging for clients.
“Internally, we’ll be crafting the hard data used in the blog post,” he noted. He also expected marketing-related functions to be one of the biggest areas where wealth managers implement AI in the near future.
Because of AI’s limitations, a wider implementation could help with productivity and automation of common advisor tasks, according to Cloherty
“In my experience with ChatGPT, if you’re trying to learn a new concept, it will give you a B- to B+ education on that topic. It’s not going to be able to tell you about the implications of the war in Ukraine or some of these other recent elements in the news,” he said.
Major Financial Players Look to Implement AI
However, that limited role is likely to expand. Some of the most prominent financial institutions in the world are making moves to integrate AI into their client offerings. In March, Morgan Stanley announced that its wealth management unit would be leveraging OpenAI technology to enhance its financial advisors’ capabilities to assess large datasets.
“This technology is a game changer in synthesizing our expansive intellectual capital, bringing the value and richness of it to a whole new level, and in the process freeing up valuable time for financial advisors to do what they do best—serve their clients,” Andy Saperstein, co-president and head of Morgan Stanley Wealth Management, said in a statement at the time.
Also, JPMorgan Chase is developing cloud computing software that uses AI, which is already being compared to ChatGPT, according to a CNBC report. The bank filed a trademark application for the IndexGPT product in May.
On July 27, JPMorgan further announced it would help fund an AI-focused venture with TIFIN, an AI platform focused on wealth management, that would accelerate fintech innovation in the wealth management industry.
“J.P. Morgan and TIFIN’s collaboration underscores our shared commitment to innovation and shared belief that AI will not only reshape the financial services landscape but accelerate the next era of innovation and efficiency,” Ted Dimig, global head of wealth management advisory solutions at JPMorgan, said in a statement.