The Risks of Relying On AI for Financial Advice

Should you pay off your mortgage early? Do you need to focus on topping up your pension? Is now the right time to withdraw your tax-free lump sum? 

Research from Zable found that over three million people are now turning to AI for financial planning advice, typing questions like the above into ChatGPT, Google Gemini, and other AI models. But relying on a chatbot for answers comes with several risks, especially with regards to accuracy and protection.

Below, we explore the real risks of using AI for financial advice, and why your questions are better directed towards a qualified adviser.  

Four Reasons Why You Should Not Turn to AI for Financial Advice

1) AI Sounds Confident Even When It Is Wrong

AI chatbots are designed to produce answers that sound right. But that is not the same thing as producing answers that are factually correct. If you then make decisions based on that incorrect information, this could potentially have catastrophic financial and legal consequences.

FinTech firm Saturn investigated the accuracy of AI answers in their recent ‘Artificial Authority’ report, and the results make for uncomfortable reading. They tested popular AI models against 121 financial questions, and found that 57% of the answers given were incorrect. The error rate rose to 88% on more complex answers. Some of the mistakes included inventing incorrect student loan rules and wrongly claiming that mortgage payment holidays do not affect your credit score – both of which could leave you with penalty charges and/or a damaged credit file. 

2) AI Financial Advice Is Not Regulated

In the UK, financial advisers must be authorised and regulated by the Financial Conduct Authority (FCA). They have a legal duty to act in your best interests and they must give advice that is suited to your specific circumstances. If that advice then turns out to be unsuitable, you can complain to the Financial Ombudsman Service and potentially receive a settlement from the Financial Services Compensation Scheme.

None of this applies with general-purpose AI tools, despite 44% of people mistakenly believing otherwise. Most tools include a disclaimer saying that they do not provide financial advice; but if you act on a poor answer, you cannot hold anyone accountable or fall back on any compensation schemes. This may change in the future, but until then, the risk sits with you. 

3) AI Only Works With the Information You Give It

AI chatbots only answer the direct question you ask it, based on the information or context you provide. If you fail to mention an old workplace pension or the fact that your partner is a higher-rate taxpayer, for example, then you may receive incorrect advice. AI tools are also biased and they tend to agree with you. If you frame your question in a way that suggests the answer you want, the chatbot will usually give you that answer. But this is not helpful when making major financial decisions.

Good financial advice depends on seeing how every part of your finances fit together. A qualified adviser is trained to ask the questions you might not have thought of, and ask them in a way that eliminates any bias or judgement. AI, however, is not.

4) Your Information Does Not Remain Private

Another major ChatGPT financial advice risk is the fact that your sensitive financial details or personal information may not remain private. If you tell an AI tool about your income or your pension values, for example, then this information could be stored on the provider’s servers and read by human reviewers, or used to train future AI models (unless you opt out). 

When you work with a regulated financial adviser, your personal information always remains confidential. Advisers must follow strict data protection rules, including UK GDPR, to ensure that your details are stored securely and are only used to help you plan your finances. 

AI vs Financial Adviser: Can AI Replace a Financial Adviser?

We are not here to tell you that AI is all bad. It certainly has its uses and can be a useful starting point to help you learn the basics, such as how an ISA works or what a SIPP is. But the problem occurs if you treat a chatbot’s answer as a personal recommendation and make decisions based on the information it outputs. 

Financial advisers, on the other hand, take the time to understand your goals and your personal circumstances, and build up a complete picture of how every part of your finances fit together before making any recommendations. They are regulated by the FCA and take full responsibility for the advice they give, so you can rest assured that you will never be left to carry the risk alone if something goes wrong.

Get Financial Advice You Can Rely On from Piercefield Oliver

Whatever stage of life you are at, and whatever questions are keeping you up at night, Piercefield Oliver’s expert team of human Independent Financial Advisers (IFAs) are here to help you navigate your individual financial challenges. 

Each of our advisers brings almost three decades of experience in complex financial matters such as divorce, pensions, and estate planning, offering expert advice that is completely tailored to you and fully regulated by the FCA.

We will take the time to listen and get to know you, before designing a financial plan built around your individual circumstances and goals. Your adviser will be a helping hand every step of the way to review your plan as your life changes. When you work with us, you will never have to face a major financial decision alone.

Book your free consultation to discuss your financial challenges with one of our advisers.