Why you may need money help you can’t get from AI

AI tools will increasingly provide good and accurate answers to your questions about money. 

Some people are even asking AI to generate financial plans.

But money is not just about the numbers and information. Financial plans shouldn’t just be about calculations and products. Many money decisions are emotional ones and your financial plan should be about how your money can enable your financial goals without compromising your values and beliefs.

This is why help from a suitably qualified human adviser remains invaluable, speakers at two recent conferences said. 

While AI does still make mistakes, it is evolving and it is likely that in future you will have less need of a financial adviser to provide you with information, the calculations, the product information, Francois du Toit, founder of a platform for financial advisers, Propulsion, said at the recent Humans under Management conference in Cape Town.

The value of a human

A human adviser is valuable because they are accountable for their advice, he said. With ChatGPT, you bear the risk if decisions based on its answers prove inappropriate – something you may discover only years later.

A good adviser should be willing to discuss with you anything you find out about your finances either online or using AI, Du Toit says. You may Google a medical condition or a medicine recommended by your GP, but it is still better to ask your GP to examine you and prescribe treatment that suits you, especially as you may have other conditions and already be taking some medicines, he said.

Another reason to use an adviser is that you will face big moments in life - a death, a divorce, selling your business, retirement or falling ill, where an adviser can guide and coach you through the difficult money decisions you need to make.

Uncomfortable decisions

Emotional needs are the key reason why people engage financial advisers, Ryan Murphy, the global head of behavioural insights at fund rating and investment manager Morningstar, told the recent Morningstar Investment conference in Cape Town.

Morningstar surveyed 623 households about why they had chosen to use a financial adviser.

The most common reason people engaged an adviser was discomfort with handling financial issues or making financial decisions alone.

The survey responses included people saying they wanted to be sure they were saving enough, “two heads are better than one” or the adviser “knew more than we did”, Murphy said.

These people recognised that investing and reaching financial goals requires certain skills but they lacked confidence in their own knowledge and abilities to do this, he said.

Getting tasks done

Morningstar’s survey found respondent’s second biggest reason for hiring an adviser was to help with a specific task, such as starting to invest, completing tax returns or drawing an income from savings, Murphy said.

The third biggest reason was also one concerning our emotions – people said they did not have the discipline to invest or insure themselves, or needed a sane voice to bounce ideas off. Financial advisers call this help behavioural coaching, but as consumers we typically don’t think this is what we need, Murphy said.

However, research has confirmed that behavioural coaching is typically the biggest source of value you can get from a financial adviser.

Advice adds three percentage points

For 25 years, Vanguard, a US based investment management company known for its low‑cost mutual funds and exchange traded funds, has researched investors’ returns through its Adviser Alpha research in the US, UK and a number of other countries.

Vanguard has found that people who work with an adviser typically earn returns that are three percentage points higher than that earned by people who don’t use an adviser. About a third of this is a result of advisers coaching clients about appropriate asset allocation for their investments, helping them stick to it and rebalance their portfolios when appropriate.

Investments overseen by an adviser are kept within an appropriate allocation to the different asset classes and are not allowed to drift away from this allocation. This results in their investors losing less in returns over time, Vanguard found.

Murphy says investing is about risk and return trade-offs that people need to make to achieve their goals. We are more likely to reach our goals when we have advisers who coach us on what we need to do to achieve our goals, help us understand the risks involved and how to stay invested through any short-term market downturns so as not to lose out on good returns.

Find an adviser you trust

Three out of four people surveyed by US personal finance platform Credit Karma said they used AI to ask questions they were too embarrassed to put to a financial adviser, Du Toit said.

If you find the right financial adviser, no question should be too embarrassing to ask.

Many South Africans are embarrassed about their lack of experience in growing wealth, Olwethu Masanabo, chairperson of the Financial Planning Institute and chief operating officer at BDO Wealth, told the Humans Under Management conference.

If you are the first generation in your family with the ability to grow wealth, you may lack a safe psychological framework for managing money, Masanabo said. You may have grown up with financial chaos, she said.

If your adviser does not understand and validate this money trauma and how it shows up in you, you may struggle to stick to a financial plan, because financial chaos feels more familiar, she said.

Survivor guilt, family responsibility or black tax and a lack of experience of retaining money can all result in you making financial decisions that do not align with financial plans, unless you have someone to guide you, Masanabo said.

Your advisers can create a safe space in which you can recognise historical, cultural and family realities, validate your experiences and respect your family obligations, she said.

Your adviser should then work with you to create wealth without betraying your family or making you feeling ashamed, pressured or fearful about your financial decisions, Masanabo says.   

This requires a skilled human adviser and you are unlikely to find this kind of help online or from AI.