An AI financial advisor is a digital tool that uses artificial intelligence, algorithms or machine learning to provide financial advice or planning that traditionally might come from a human advisor. Individuals and families can directly input their information into the AI financial advisor which generates personalized financial recommendations instantly.
AI excels at providing financial planning and advice in several different ways:
All these applications of AI in financial planning and advice brings up the question of whether AI can actually replace traditional financial advisors.
Because of AI’s cost effectiveness and data-driven approach, it has the potential to expand the market and make financial planning more and more accessible - to young adults, families and professionals looking to build wealth and achieve their financial goals. One does not have to be wealthy in order to afford financial advice or personalized recommendations because AI can do this in a cost-effective manner.
The best candidates for AI based financial tools are DIY professionals who want to make their own decisions but find it helpful to use a tool to run the numbers. These professionals are also typically busy and may wish to plan their finances on their own time, rather than scheduling regular meetings with advisors. They are also digital natives and tech-savvy, and therefore comfortable with working with a digital product rather than a human.
There is a perception that traditional financial advisors often push people towards high-cost funds or charge high fees. People who have had a sub-optimal experience with traditional financial advisors because of these reasons might prefer to use AI based digital products that are perceived as unbiased and cost-effective.
AI financial advisors can reduce costs by automating the process of delivering personalized financial advice at scale. Instead of paying thousands of dollars per year in fees, people can get personalized financial advice for a fraction of the cost with AI based tools. This will appeal to individuals who are cost conscious and want to avoid paying high fees to advisors..
People interested in the Financial Independence/ Retire Early (FIRE) movement will find it very useful to use AI financial planners that help them crunch the numbers and make financial decisions.
The people who will value financial advisors the most are typically those that value human connections and want to talk to a human before making financial decisions. They can get comfortable by having an advisor walk them through their financial plans before making major financial decisions.
If you are the type of person who is prone to making emotion-based decisions, you might be better off with a human advisor, who can hold your hand and talk you out of rash decisions. If you tend to do panic-selling when the markets are down, an advisor who manages your money for you in a rational manner may be just what the doctor ordered.
People who find themselves having complicated financial situations might want nuanced financial advice. In such cases, they may want to talk to human advisors to discuss the pros and cons of various options before they decide their actions.
And lastly, if you have had a long-standing relationship with a financial advisor and are happy with their service, you might just want to continue working with them.
So will AI replace financial advisors? It’s not a simple yes or no, as it depends heavily on your personal needs, financial complexity and how much value you place on human interaction.
If you value human connections and having someone guide you through your options, it might be worth working with a human financial advisor. Especially when it comes to irreversible decisions, such as big decisions in the retirement planning stage of life. With these big life decisions, you’ll want to make sure a seasoned professional ensures the quality of their work and can explain it in simple terms.
For everyone else, Planwell is building a fully automated AI financial planner that helps users plan for multiple goals and create an optimized savings plan to hit each goal.
To help you further in your journey, check out some of these helpful resources:
How to Use AI Budget Calculators and Tools to Plan Your Finances: Take advantage of modern technology to plan your finances more effectively.
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