Young Americans are more likely to use an AI financial advisor, based on a Yahoo Finance-Ipsos poll. Ben Carlson, Ritholtz Wealth Management Director of Institutional Asset Management, joins Yahoo Finance Live to discuss the pros and cons of AI in the financial services industry.
Video Transcript
RACHELLE AKUFFO: It will come as no surprise that artificial intelligence is making its way into the financial services industry. But would you trust an AI to give you financial advice? Well, a new Yahoo Finance poll suggests that 2/3 of investors are unlikely to use AI financial advisors. However, the younger the investor is, the more likely they are to be open to using an AI financial advisor, as 20% of Gen Z responded positively when compared to only 9% of Baby Boomers. Well, let’s dig in further with Ritholtz Wealth Management Director of Institutional Asset Management, Ben Carlson. Ben, thank you for joining me this morning. So as we look at this sort of– some differences across generations, but for the most part, people don’t seem to be sold on some of these AI financial investment tools. Why do you think that is?
BEN CARLSON: Well, a big piece of the financial advice business is based on trust. And I think people have a hard time trusting their life savings and huge financial decisions to a piece of technology, especially one that’s still relatively new.
RACHELLE AKUFFO: And I want to ask, because a lot of these investment banks or financial platforms, they have robo-advisors, that sort of automated, you can set it and forget it, depending on your risk tolerance. But what does this level now of having AI financial advisors add to the mix?
BEN CARLSON: Remember when the robo-advisors came out, a lot of people thought our financial advisors are in trouble because we now have this automation piece that can do the portfolio management for you. And I think what people realized very quickly back then was that a portfolio itself is not really a plan. That’s just asset allocation and that stuff becomes sort of a commodity. And I think AI is going to be kind of similar when it comes to information. In the past, it used to be that maybe the advisors had way more information than regular people and regular investors. But now, that information is becoming a commodity. So it gets back to the decision-making framework.
And unfortunately, when it comes to making big financial decisions, there’s rarely any black or white. Should I save my money in this vehicle or that vehicle? Well, it depends. Should I pay down my mortgage or invest more money in the stock market? Well, it depends. How much should I take out of my portfolio each year when I retire? Well, it depends. And so thinking through a lot of those gray areas where there isn’t really a right or wrong answer, that’s where advisors come in to help people make better decisions. And I think people realize that it’s going to be hard for technology to displace that.
RACHELLE AKUFFO: And when you look at some of these ChatGPT versions of it, we know that JP Morgan has patented its own sort of index GPT. So waiting to see how that will play out, obviously. But when you think of some of the companies that are getting into this, it can be a little bit difficult if you’re a consumer trying to figure out how much you should rely on it as an assistive technology versus, say, a bit of advice and sort of go your own way with it. How should people be approaching this when they’re trying to pick some of these AI financial advisors?
BEN CARLSON: That’s the hard part, really, is we have so much information available at our fingertips now, is that the filter is going to become more important than ever. Everyone has access to all this information that people in the past would have just couldn’t even dream of. And so I think it helps to have someone who can actually take that information and distill it to make sense for your specific circumstances, where you are in life, how much money you make, how much you need to save, how much you have saved, all these other things. I think putting it in the correct context and making perspective around it, that’s the big thing. And you’re right, it can be– investing in itself is already an overwhelming process for people. Now, if we have all these other tools and machines at our fingertips, I think it’s going to be hard for people to know who to trust. So that’s why where I think the Wealth Management Industry and advisors can actually help, is by providing some sort of filter for the fire hose of information that everyone’s going to have available to them.
RACHELLE AKUFFO: It really is this fire hose of information. Because I mean, even when you look at ChatGPT and these AI prompts, there’s very sort of specific questions that you have to put in to really get the most accurate results. This is something the average person is not thinking about, this sort of putting in some sort of short and sweet questioning here. How important is it then going to have to learn things like AI prompting to be able to sort of get some of these optimal results out?
BEN CARLSON: It’s difficult. I don’t know how to do AI prompting yet, I guess. But I think that’s one of the reasons that that’s kind of the benefit a good advisor can provide. They know how to ask the right questions. They know how to listen as well when it’s important to understand what someone is going through, and what they’re worried about, and what they’re thinking about. And I think that’s where the human element comes in. I do believe that this information, this technology will only make advisors even more beneficial to people because they’ll know what to pay attention to, and what to ignore, and the right questions to ask, and the right things to focus on. I think that’s the hard part for most people when it comes to making financial decisions, is understanding like this is the stuff that’s really important for you to pay attention to, and you need to ignore all this other noise because it’s not going to be very helpful to you. That’s going to become even harder and more challenging. So I think advisors might even become more important in this world of AI.
RACHELLE AKUFFO: And so then, as you look at some of these companies that are weighing in on AI and big tech in general then, should there be some sort of responsibility? People already are struggling with financial literacy. When you add this sort of AI aspect that could potentially, if there’s a company that takes out the human aspect of it and just has the AI focus, some of that worry about culpability when you already don’t have people who are fully financial literate literally jumping into some of these things.
BEN CARLSON: It could be. And I actually do think that this technology will help people on the young end. So you showed in your survey there that Gen Z are the least likely to want an advisor, more likely to trust an AI. I actually think for young people, most young people don’t need an advisor, right? So I think because their life isn’t complicated enough, they don’t have estate planning issues, they don’t have as much insurance issues, they don’t have as much tax-related planning to do in most instances. So I think young people, this can really help hopefully answer some of their big questions. Because again, it’s so overwhelming. Do I put my money in a 401k or an IRA? Do I save in stocks, or bonds, or cash, or real estate? All these different questions, I think maybe that AI as a baseline layer could help people answer some of those questions who are just beginners in trying to figure out what is the stuff I really need to pay attention to. Because most people, that’s where they get stuck in the process, is just what do how do I even begin?
RACHELLE AKUFFO: Right, exactly. But at least, an interesting use here for AI financial advisors as a starting point. A big thank you there at Ritholtz Wealth Management Director of Institutional Asset Management, Ben Carlson. Thank you so much.
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