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According to finance experts, the financial capabilities of artificial intelligence platforms are improving to such an extent that it will be able to replace human financial advisors in the future.
However, AI has one major drawback compared to human advisors: a lack of fiduciary duty, he said. And a solution to that legal gray area doesn’t appear imminent, he said.
Fiduciary duty is a legal obligation that many financial advisors – and professionals in other fields, such as lawyers and doctors – owe their clients. This essentially means that they will put the best interests of their clients ahead of their own.
“The problem we have to solve is not whether AI has enough expertise,” said Andrew Lo, a finance professor and director of the Financial Engineering Laboratory at the MIT Sloan School of Management. “The answer right now is clearly that AI has the (financial) expertise.”
“They don’t have a fiduciary duty,” Low said. “If they make a mistake they don’t have the ability to face consequences to the extent that a human advisor does.”
An advisor who violates his or her fiduciary responsibility can face quite serious consequences, including regulatory penalties, civil liabilities and criminal charges, Lo said.
The notion of putting a client’s interests ahead of your own has “no basis” without accountability or legal liability, he said.
An ‘unresolved’ legal question
Many are turning to larger language models for financial advice – examples include OpenAI’s ChatGPT, Anthropic’s Cloud, and Google’s Gemini.
According to Intuit Credit Karma, two-thirds of Americans, or 66%, who have used generative AI say they have used it for financial advice. voting Published in September. The share for Millennials and Generation Z has increased to 82%.
Nearly 85% of respondents who used GenAI for financial advice acted on the recommendations provided, according to the survey, which included 1,019 adults.
“People are looking to these services for all kinds of advice, and they’re getting it, and it seems to be a big open regulatory question,” said Sebastian Benthall, a senior research fellow at the Information Law Institute at New York University School of Law.
“Who is really responsible, and can people really trust a product to do this if it is not being backed by a corporation with a fiduciary duty?” Benthall said. “It’s really unresolved.”
Why you shouldn’t blindly trust AI – or humans
There are some good use cases for AI in financial planning, Lo said.
AI is “really good” at providing online resources for various financial concepts that ordinary people don’t understand, Lo said. For example, if someone is looking to answer basic questions about Medicare, AI can generally provide a reliable overview, he said.
Although AI’s output is sophisticated in many financial matters, consumers should generally not blindly trust its answers to questions about their household finances, Lo said.
“When it comes to very, very specific calculations of your individual situation, you have to be very, very careful,” he said. “One thing I find particularly worrying about LLM is that no matter what you ask it, it will always come back with an answer that sounds official, even if it isn’t.”
In this sense, double- and triple-checking the AI’s answers is “really essential,” he said.
Perhaps surprisingly, Lo said, AI isn’t strong at doing financial calculations — so any numbers-based financial planning questions related to your taxes, for example. Generally it is better to avoid it.
If they make a mistake, they don’t have the ability to face consequences to the same degree as a human advisor.
Andrew Lo
Finance Professor and Director of the Financial Engineering Laboratory at the MIT Sloan School of Management
James Burnham, legal and government affairs officer for Elon Musk’s xAI, said in a social media post It said in March that the company’s AI platform, Grok, “is not tax advice so always double-check with yourself.”
Of course, many human financial advisors give advice to clients, and then it is up to the client whether to implement it or not.
“I think I would look at LLMs in a similar way: they can be very useful in providing different options and explaining how those options might work, but you should always remember that the advice they may give you may be wrong,” Lo said.
“But I would argue that this is also true with human financial advisors,” he said.
Not all human advisors are fiduciaries
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Not all human financial advisors are also fiduciaries.
The financial advice landscape is a minefield of different legal relationships. Those legal duties may vary depending on factors such as whether the person the consumer is talking to is a stockbroker, registered investment advisor, insurance agent or other intermediary.
For example, a U.S. Labor Department rule issued during the Biden administration sought to impose a fiduciary duty on intermediaries that recommended moving money from a 401(k) plan into an individual retirement account, a move that could involve hundreds of thousands of dollars.
Benthall of New York University proposed a similar legal dilemma regarding AI advice: Since AI giants are largely US-based right now, if an AI suggests that investors put their retirement savings into US stocks, that advice could be viewed as self-dealing, or a financial conflict of interest.
That said, companies providing AI services do not receive compensation for their advice to retail investors, and therefore they are not fiduciaries, said Jiaying Jiang, an associate law professor at the University of Florida Levin College of Law, who is researching AI and fiduciary duty.
Who is really responsible, and can people really trust a product to do so if it is not being backed by a corporation with a fiduciary duty? This is really unresolved.
Sebastian Benthall
Senior Research Fellow at the Information Law Institute of New York University School of Law
However, financial advisors who have a fiduciary duty to clients could breach that duty by using AI, Jiang said.
For example, if an advisor uses AI to give a client a certain recommendation, but that recommendation is not in the client’s best interests, it is the advisor — not the company supporting the AI platform — that would be liable, Jiang said.
Ultimately, Lo said he thinks government policy needs to change to provide fiduciary protections for consumers who receive financial advice from AI.
Until then, “we will not be able to get to the point where we can completely delegate these (financial) decisions,” Lo said.
“But I’m confident it will happen eventually,” he said.
