AI Financial Advisors May Outperform Humans

For decades, Americans were given the same advice about money: find a good financial adviser and trust the person, rather than just the process. This model worked well in simpler market environments, where tax laws changed slowly and financial decision-making was less complicated. However, as economic landscapes shift due to inflation, market volatility, rising debt, and rapid policy changes, the reliance on traditional advice — often characterized as reactive and emotional — appears increasingly inadequate.

As we delve deeper into the evolving financial advisory landscape, a significant reality surfaces: artificial intelligence may soon outperform many human financial advisers. This observation comes from my experience providing financial advice to numerous families over the past 34 years and recognizing the challenges that lie ahead for traditional advisers. This potential isn’t merely theoretical; practical applications show that AI could revolutionize financial advice.

Human Behavior: The True Threat to Wealth

The biggest threat to personal wealth often stem from human behavior, particularly during market downturns. History teaches us that panic selling leads to significant financial losses. Misguided investments, such as those in unsound ventures or speculative cryptocurrencies, highlight a persistent quest for quick riches, often to the detriment of long-term wealth accumulation. Such behaviors ultimately can erode more wealth than taxes, fees, or economic recessions combined.

AI’s Edge: Logic Over Emotion

Even human financial advisers can fall prey to emotional decision-making influenced by market hype or client pressures. AI systems, by contrast, operate strictly on data, probabilities, and established rules. These systems do not experience fear or greed, thus maintaining a disciplined investment strategy over the long term. Warren Buffett aptly stated that discipline prevails over emotion, a principle that machine learning perfectly embodies.

Transforming Financial Monitoring

Unlike the infrequent meetings typical in traditional financial advising, AI-driven solutions can continuously monitor critical aspects of a client’s financial health, such as spending patterns, cash flow, and tax efficiency. This real-time analysis allows for immediate responses to market and financial shifts, setting AI apart from conventional advisers who might overlook these day-to-day variations.

Breaking Down Barriers with AI

Historically, high-quality financial advice has been exclusive to the wealthy. AI has the potential to democratize this space by offering continuous guidance and behavioral coaching at lower costs, void of the commission-driven motivations typical of conventional advisors. The idea of a monthly subscription for financial coaching is becoming more appealing, especially when compared to prevalent entertainment subscriptions that do not contribute toward financial well-being.

Reevaluating the Role of Human Advisers

Despite the rise of AI, not all financial advisers are destined for obsolescence. Those who excel do so by integrating emotional intelligence and real-world experience into their advisory roles, fulfilling functions that AI cannot replicate. Ideal advisers will leverage technology to enhance their practice, focusing on managing relationships and navigating complex human emotions while allowing AI to handle routine monitoring and calculations.

Foreseeing the Future of Financial Guidance

The advancement of AI does not signify the end of human financial advising, but it does indicate that average advisers face greater challenges in demonstrating added value. As the industry continues to evolve, the integration of AI systems is likely to increase standards of care and reduce costs, ultimately benefiting consumers. For investors, this shift may mean that, in a time where emotional decision-making often leads to costly mistakes, the optimal financial counselor could soon be a machine — a development that appears promising for a more stable financial future.

Ted Jenkin is the president of Exit Stage Left Advisors and a partner at Exit Wealth.