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Artificial Intelligence (AI) tools have been a game changer in many of our lives. When used correctly, AI can help us research topics and solve problems that were previously beyond our understanding.
This includes our life financial planning; from budgeting, to investing and everything in between. Whilst these tools prove helpful, they can lead us to ignore blind spots in our financial lives that might cause long-term damage.
Missing key information discovered during a fact find process
The first blind spot can occur when someone puts their financial life & goals into an AI platform, asking it to generate a financial plan. It seems like a seamless way to get the answers we need, to live the life that we want.
The challenge here, is that you might have left out key information that would change the plan significantly. For example, what if you didn’t note that your public sector employer pays 15.4% super on top of your salary? Accounting for this information might significantly shorten the timeline to a future retirement. What if you have a blended family that isn’t noted as part of your situation? This could cause you to make some important estate planning mistakes, leaving some of your future beneficiaries worse off than you intended.
A Financial Adviser is required to collect as much information about someone’s financial and life situation as possible at the present day. We also look at the long-term implications of making different life decisions. This makes the financial plan for each person highly tailored to their unique lives, through discussions between the client and their adviser. On the other hand, AI platforms offer a one-way approach, less able to ask relevant and targeted questions to you that are critical to a quality financial plan.
A false sense of confidence and understanding
The second blind spot with AI platforms is that they can provide a false sense of confidence when engaging with financial concepts. For example, the other day I saw someone online promote their financial plan, generated with AI.
They were a middle-aged high-income earner, wanting to create an income stream for their future retirement. They were told by an AI platform that the best strategy was to build an investment account with an Australian Equity fund, because of the good dividends paid.
Initially, this seems like a fine strategy. Yet if this person had a bit more financial knowledge, they’d be able to ask some important clarifying questions of the AI. What is the risk of being concentrated to one asset class in Australian Equities? What other investment structures might be more effective for asset protection and tax efficiency? What other ways are there to generate tax-efficient income given that they’ll be losing up to 47% of dividend income to tax? The benefit of getting these kinds of questions right can be in the tens of thousands and lead you to achieving your goals faster.
Adapting the plan to your life’s changes
The third blind spot with AI platforms is that they do not adjust to your life at key milestones, unless you consistently provide the targeted information and questions to get the most out of them.
For example, if you recently started a new role at a charity, are you able to access salary packaging benefits? Unless you feed this new piece of information into an AI model, the financial plan it originally created for you may be leaving opportunities on the table. One of my colleagues once told me that great financial advisers find problems and turn them into opportunities. With life ever changing, having an adviser in your corner can help you take advantage of the opportunities that you or an AI platform might miss.
In summary
When used correctly, AI platforms can be valuable tools to positively shape your financial life. By asking specific questions in the context of your financial situation, verifying information against credible sources or professionals and reviewing changes in your life frequently; you can avoid some of the blind spots of using AI platforms.
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The Money & Life website is operated by the Financial Advice Association (FAAA). The views expressed in this article are those of the author and not those of the FAAA. The FAAA does not endorse or otherwise assume responsibility for any financial product advice which may be contained in the article. Nor does it endorse or assume responsibility for the information.
