'Done right, AI can serve as an advice-giver,' a C.D. Howe report says, 'including to advisors themselves.'Alfieri/iStockPhoto / Getty Images
As more Canadians are left to manage retirement savings and decumulation on their own, the tools and options for doing so have become more complex. And many of the barriers to advice – fees, lack of education and overwhelming choice – remain in place.
Artificial intelligence is often held up as the great hope for delivering more affordable financial advice. A C.D. Howe Institute report looks at the possibilities of AI for increasing financial literacy, improving advisor productivity, and providing direct advice to Canadians. Interestingly, authors Pierre-Carl Michaud and Bernard Morency see the most potential for AI in helping advisors.
Many advisors are already using AI for meeting summaries, but the report proposes developing large language models (LLMs) to be used as conversational agents that help clients fill out pre-meeting information.
“Unlike filling out a static form, a well-trained LLM can adapt questions to each client’s circumstances and investigate areas which might be relevant for advice given to the client,” the report says. That would free up time for advisors to build relationships with clients and offer tailored advice.
The most “problematic” way to use LLM-based tools is as direct advice to consumers, the authors say. As my colleague Meera Raman found after putting common personal finance questions to ChatGPT, the answers often contain good, basic information, but they’re too general to be relied upon by a specific person.
There’s also the spectre of LLM “hallucinations,” or invented information. Even an LLM trained by advisors wouldn’t be hallucination-proof, the C.D. Howe report says, and the risks to financial institutions are so great it’s “difficult to imagine a world in which consumers can completely rely on advice provided by AI.”
A two-step process in which an advisor verifies the AI advice is far more likely, the report says.
One potential use for wealth management firms is an LLM that proposes a menu of recommendations from which advisors can choose the appropriate option for a given client – much like how firms manage investment product shelves today.
But the report says that could be broadened to other areas of advice, such as decumulation, in which more complex solutions involving a mix of insurance and investment products may be appropriate.
“In these cases, even experienced advisors may sometimes themselves not be fully versed in these more complex solutions and default to simpler ones,” it says. “Done right, AI can serve as an advice-giver, including to advisors themselves.”
The report also contains interesting findings on the relationship between financial education and advice. Where one may sometimes be viewed as a substitute for the other, the authors make the case that education and advice are complementary.
Financially literate consumers are more likely to seek advice, it says, and they tend to get more out of it, as clients need to understand an advisor’s recommendations in to act on them. Meetings with financially literate clients are also more productive as less time is required explaining the recommendations.
To enhance financial literacy, the report says regulatory bodies, professional organizations such as FP Canada, or agencies such as the Financial Consumer Agency of Canada, could build and promote LLMs that are free to the public.
“Investment in the production of this type of public good may be of limited value to any particular private-sector actor, but could help generate externalities that all actors will eventually benefit from,” the report says.
How are you using AI, and how do you expect to be using it in a few years? Let us know.
- Mark Burgess, Globe Advisor assistant editor
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