Artificial Intelligence (AI) has long been a fascination of the human imagination.
However, it wasn’t until 2022 with the rapid rise of large language models like ChatGPT, that AI became widely accessible and began reshaping the way people interact with technology in their everyday lives.
Although only a few years old, the latest developments have revolutionised the way we communicate, work, and even make financial decisions.
A recent survey by Experian found that a growing number of younger people – 67% of Gen Z and 62% of millennials – are either using or open to using AI to manage their money.
While this shift may seem like a step forward, it’s important to proceed with caution, especially when it comes to something as complex and personal as financial planning.
Here are five key risks of using AI for financial planning that it’s important to be aware of.
1. Limited personal insight
Financial planning isn’t one-size-fits-all.
A financial planner will take the time to gain a comprehensive picture of your life, goals, responsibilities, and values before making recommendations. They take a holistic approach to understanding your finances that goes beyond just numbers.
AI, in contrast, can only work with the data it’s given. It may offer generalised suggestions based on standard models, but it won’t prompt you to think about issues you may have overlooked or offer guidance based on the unique details of your situation.
A financial planner can factor in elements of your life that you may have even forgotten to mention. AI, on the other hand, will only reflect what you’ve explicitly told it, often missing the bigger picture.
2. No regulation and no protection
In the UK, financial advisers must be authorised and regulated by the Financial Conduct Authority (FCA), which ensures strict standards and protects consumers from poor advice or unethical practices.
If something goes wrong when working with a financial planning firm, you may be eligible for compensation under the Financial Services Compensation Scheme (FSCS).
AI tools are not subject to any of these regulations. If an AI platform gives you incorrect or harmful advice, there’s no legal accountability, no governing body to intervene, and no financial safety net to fall back on.
3. Privacy concerns and security risks
To receive useful financial advice, you need to share sensitive information, such as your income, investments, and debts. Handing that data over to an AI system could open you up to privacy breaches or misuse, particularly if the platform has weak security protocols.
While humans are also capable of mishandling information, regulated financial planners are obliged to maintain confidentiality and data security, and if they fail to do so, you can seek support and guidance from the regulatory authorities.
AI platforms are unlikely to offer the same level of protection, potentially leaving you vulnerable to risks or data mismanagement.
4. Errors and technical glitches
While AI can process vast amounts of data quickly, it’s far from infallible. Mistakes ranging from simple miscalculations to bizarre malfunctions are not uncommon.
Chatbase reports that older versions of ChatGPT have between a 50% and 80% accuracy rate, while the latest version has reached 88.7%. Though this may seem high, an 11.3% inaccuracy rate could prove costly if you used it to help you make an important financial decision.
Moreover, chatbots have been known to malfunction, with the cause often being unknown. In one strange incident, the Mirror reports that users noted a language-processing error in ChatGPT that caused it to blend Spanish and English in the same response, as well as make threatening comments.
Though these examples might seem minor or even amusing, they highlight the fact that AI systems can and do get things wrong. And if you’re relying on one to guide your investments or retirement planning, an error could prove costly.
5. It lacks human understanding
People turn to financial planners for all manner of reasons, including during some of life’s most difficult transitions, such as divorce, the loss of a partner, or the birth of a child.
In such moments, having a calm, experienced adviser at your side can make all the difference. A good planner can offer perspective amid volatile markets and reassurance when you’re facing emotional or financial uncertainty. They can help you stick to your goals and avoid impulsive decisions driven by fear or excitement.
AI can’t replicate human empathy. It can’t listen deeply, ask follow-up questions based on tone or emotion, or support you through the complexities of grief. When things get tough, it can’t offer real comfort or real accountability. For all its benefits, AI lacks the understanding of a human financial planner.
So, to speak to a financial planner, get in touch.
Email us at hello@vwmwealth.com or call us on 0141 229 4004.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
