AI

It is hard to avoid news items about ChatGPT at the moment. It makes for great copy for journalists, who can ask it anything and write an article based on its response.

If you have been lucky enough to avoid this ubiquitous language robot so far, let me explain. ChatGPT is a large language model chatbot that uses artificial learning (AI) to answer questions. Recently Microsoft have heavily invested in it and have announced that they intend to embed it into their search engine Bing and also their Office suite of products.

The success of ChatGPT has been extraordinary and it has recently passed The Bar Exam amongst others, leading to this warning post from fellow flat fee planner Alan Smith. The slightly apocalyptic response from our own Managing Partner can be seen here.

ChatGPT has demonstrated for the first time, what we have been saying for a while, that some service jobs will be taken over by software in the future. Tax returns, wills, contracts, adverts are all services that software can produce easily as they are largely rules based which is where AI performs best. Therefore accountants, marketers and lawyers currently working in these areas will need to move to more complex, value add work to stay in a job.

This nicely brings us to Financial Advisers who also provide a service, parts of which are highly rules based. From what we have seen ChatGPT doing it is entirely plausible that let loose on your finances they would do a better job than most advisers of tax optimisation (a euphemism for avoidance). It should also be able to run complex future cashflow forecasting and optimise investment portfolios for cost and performance. It might just be the secret to launching the Direct Indexing we blogged about previously here.

At this point you might be wondering what on earth is left for the adviser to do and therefore justify their fees. The answer is that most advisers don’t do any more than this and therefore are at serious risk. The main role that is left is one of coaching good behaviour. That might sound slightly patronising if you feel your behaviour doesn’t need coaching but plenty of research shows that the most damage clients do to their wealth is through their own poor behaviour. It is the same reason that drives us to pay personal trainers to make us keep fit.

The ongoing evolution of AI is therefore a threat to the many but a huge win for the few. If you are an adviser who works closely with a small number of complex clients, AI should take away a lot of manual work and make your service faster and even allow you to reduce the price you charge.

In the UK there are about 27,000 individuals giving some form of financial advice. For a long time the view has been that this is too few, as there is a huge advice gap, with only 7% of the population taking advice leaving a gap of 20million adults unadvised. The solution for this portion of the population is probably never going to be more advisers but faster, cheaper advice and this is where AI can excel. Friend of Altor, Andy Hart makes this point well in this aticle. Andy also has fun with ChatGPT on his excellent Maven Money podcast here.

Financial advice as a profession has only been around for 80 or so years and has been undergoing constant change. We should expect it to continue to evolve, we wrote an article about this for one of the Financial Times publications and you can read it here.

Do let us know your thoughts.

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