Artificial intelligence (AI) has progressed from science fiction to popular accessible in recent months, but, despite the hype, can it truly be used to better how you invest and manage your money?
ChatGPT, an open AI chatbot, is now widely used, yet it’s hard to believe that the program only debuted on November 30, 2022. Since then, breakthroughs in generative AI (the generation of text, pictures, or other media in response to prompts) have heralded an AI boom: in imagery, speech pattern mimicry, Hollywood actor recreation, and even a new AI-assisted song from The Beatles.
AI in financial services
What about how we bank, budget, and invest? Could AI care after your hard-earned money?
It’s no surprise that many banks and financial service providers are already integrating AI into their core business processes.
AI is more likely to be used in the client-facing side of a financial services firm. Banks are already using algorithms to perform client identification and authentication swiftly and effectively. Meanwhile, chatbots, which some regard as a rudimentary type of AI, may guide you through simple tasks while delivering customized insights and suggestions.
Firms are also fast implementing AI in support areas to better assess risk, identify and prevent fraud and money laundering, and perform any other regulatory checks. Mastercard, for example, claims it collaborates with nine UK banks. Its AI solution leverages large-scale payment data to detect real-time payment frauds before they leave a victim’s account.
AI may also be used behind the scenes in ‘back office’ sectors, such as trade processing. Again, AI software has the ability to simplify every task that requires data processing.
Digital-first finance
Recent years have witnessed significant advancements in mobile and digital banking and investment, making it simpler for clients and investors to access and act on their accounts remotely and simply using user-friendly interfaces.
Insider Intelligence predicts that online and mobile banking penetration among US customers will increase again next year, reaching 72.8% and 58.1%, respectively, paving the way for further AI deployment.
Digital-first wealth managers have developed by leveraging smartphone technology to eliminate the need for pricey relationship managers and branches. But, may we eventually get to the stage where corporations stop hiring wealth and investment managers?
Who knows what the future holds in fifty years? However, that is doubtful at this time. Our skilled customer service, wealth management, and investing teams are critical to provide customers with the best levels of care and risk-rated investment performance.
In terms of financial guidance, specialists who deal with your specific financial situation continue to be of great benefit. In our opinion, this is unlikely to change very soon; wealth advisers may draw on their expertise assisting clients in identifying goals and developing a financial plan that is specific to the client.
In contrast, AI only understands what’s in its dataset and what it’s been trained to do. However, this does not preclude the adviser from using technologies to assist with record keeping, compliance, and data analysis.
AI for investment
AI is being hailed as having enormous promise in the investing industry, notably in areas such as algorithmic trading, sentiment analysis, portfolio optimisation, risk management, and customized investment advice.
There are currently applications available for use by regular investors that employ AI to study and choose equities. However, while there is a lot of interest in using AI to choose stocks, there is no data to indicate that it is more valuable than human stock pickers – or investing in ETFs, as Nutmeg does.
That’s not to argue that professional investors can’t employ AI to improve their performance. For example, technology may assist speed up the filtering and analysis of new investments, as well as enhance trade execution processes.
Another area where some feel AI might be beneficial is in screening critical data required for environmental, social, and corporate governance (ESG) analyses.
For example, so-called sentiment analysis algorithms are marketed as having the ability to interpret natural language in novel and fascinating ways. In this case, investors may use the technology to interview corporate management and deduce from the words used in talks how devoted a firm appears to be to minimizing environmental hazards.
However, it is important to note that AI is dependant on inputted data, therefore in a relatively new field like ESG, there is lots of room for development as the investing sector evolves.
Validate, not replace
Rather than risk burying our heads in the sand, it would seem prudent for both customers and wealth providers to be open to rapid technological advancements and how AI may be utilized, in conjunction with human knowledge, to possibly improve our experiences and financial outcomes.
AI advancements are great, but their use in financial services is to validate human judgment rather than replace it. The technology cannot (yet) replace human critical thinking, individual study, and time-tested investing strategies developed through years of training and experience.
Risk warning
As with any investment, your cash is at risk. The value of your Nutmeg portfolio might fluctuate, and you may get less than what you invested.
