AI ‘Unlikely’ To Replace Financial Advisors Due To ‘Fiduciary’ Issue – Global X Artificial Intelligence & Technology ETF (NASDAQ:AIQ), Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ)



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As artificial intelligence (AI) gains traction in the financial advisory sphere, a crucial dilemma emerges: can AI truly replace human financial advisors, particularly in light of the fiduciary responsibilities they bear?

These thoughts were shared by Ben Henry-Moreland, senior financial planning “nerd” at Kitces.com.

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U.S. Securities and Exchange Commission regulations stipulate that advisors must comprehend the technology they employ to ensure it aligns with clients’ best interests. The black-box nature of many tools poses a significant challenge.

While some tools merely reiterate predetermined recommendations, others independently generate insights based on client data. This raises concerns about the advisor’s ability to act as a fiduciary when relying on such AI-generated recommendations.

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The “Catch-22,” as Moreland calls it, of using AI as a fiduciary lies in the sheer volume of data involved. Even if an AI tool discloses its calculations, the abundance of data may surpass what an advisor can reasonably review. This predicament prompts skepticism about the advisor’s capacity to thoroughly scrutinize AI-generated outputs.

Moreland does see a middle ground that could exist. Some tools leverage AI to process client data, furnishing advisors with a list of suggested strategies for evaluation. In this capacity, AI acts as a “digital analyst.” It expedites data analysis while leaving the final decision-making on client recommendations in the advisor’s hands.

Despite the growing sophistication of technology, he concludes that AI is unlikely to supplant the role of human financial advisors. The fiduciary duty, coupled with the necessity for transparency and accountability in regulatory contexts, demands human oversight. AI can enhance efficiency and accelerate data processing, but the intricate nature of financial decisions requires human judgment. This is to ensure clients’ best interests genuinely take precedence.

The integration of AI into financial advisory processes serves as a tool for augmentation rather than a complete replacement. As long as clients remain individuals with unique circumstances and preferences, the irreplaceable role of human advisors in empathizing, comprehending, and truly advocating for their clients’ best interests remains indispensable.

The Global X Robotics & Artificial Intelligence ETF (NYSE:BOTZ), the Global X Artificial Intelligence & Technology ETF (NYSE:AIQ) and the iShares Robotics and Artificial Intelligence Multisector ETF (NYSE:IRBO) are a few exchange-traded funds offering exposure to the space.

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Image: Shutterstock


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