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Artificial Intelligence (AI) has made the leap from science fiction to mainstream accessibility in recent months but, hype aside, could it really be used to improve how you invest and engage with your finances?  

Open AI chatbot, ChatGPT, may already be ubiquitous, but it’s incredible to think that the programme only launched on 30 November 2022. Since then, advances in generative AI (the creation of text, images, or other media in response to prompts) has heralded an AI boom: in imagery, mimicking speech patternsrecreating Hollywood actors, and there’s even a new AI-assisted single on the way from The Beatles.  

AI in financial services 

But what about in terms of the way we bank, budget, and invest? Could AI take charge of looking after your hard-earned money?  

It’s no great surprise that many banks and financial services providers are already implementing AI across their main business functions.  

The client-facing part of a financial services business is where you are most likely to see AI in action. Using algorithms, banks are already able to process customer identification and authentication quickly and efficiently. Meanwhile, chatbots – seen by some as a primitive form of AI – can talk you through simple processes, while providing personalised insights and recommendations. 

Firms are also rapidly introducing AI in support areas where they can better assess risk, detect and prevent fraud and money laundering, and any other required regulatory checks. Mastercard, for example, says it is working with nine UK banks. Its AI tool uses large-scale payments data to help identify real-time payment scams before funds leave a victim's account

Firms may also use AI behind the scenes in ‘back office’ areas where, for example, trades are processed. Again, any operation where data processing is essential could be potentially made easier through AI software.  

Digital-first finance 

Recent years has seen huge strides in developments in mobile and digital banking and investing, ultimately making it easier for customers and investors to access and act on their accounts remotely and easily across user-friendly interfaces.  

Insider Intelligence estimates both online and mobile banking adoption among US consumers will rise again next year, reaching 72.8% and 58.1%, respectively, opening doors for greater AI implementation. 

The likes of Nutmeg, and other digital-first wealth managers, have grown through using app technology and cutting out the need for expensive relationship managers and branches. But, could we one day reach a point where firms do away with hiring wealth and investment managers?   

Fifty years from now, who knows? But for now, that’s unlikely. At Nutmeg, our expert customer services, wealth services, and investment teams, are vital in offering clients the very highest levels of service and the risk-rated investment performance.  

In terms of financial advice, there remains true value in professionals dealing with your individual financial circumstances. In our view, this is unlikely to change any time soon; wealth advisers can draw on their experience in helping people in setting goals and a financial plan which are unique to the client. 

In contrast, AI only knows what’s in its dataset and what it is trained to do. However, that’s not to say that the adviser cannot use tools which could help in terms of maintaining records, compliance, and data crunching.  

AI in investing 

Investment is an area where AI is being touted as having huge potential, particularly in the likes of algorithmic trading, sentiment analysis, portfolio optimisation, risk management, and personalised investment advice.   

There are already apps being marketed for use by everyday investors which use AI to research and select securities. However, while there’s a lot of focus around using AI to pick stocks, there’s still little evidence to show it’s value versus human stock pickers – or indeed investing in ETFs, the approach used by Nutmeg.  

That’s not to say professional investors cannot use AI as a tool to help them do their job better. For example, the technology can help speed up the filtering and analysis of potential investments or improve the process of trade execution.  

Another area where some believe that AI could prove useful is in terms of filtering essential data used for environmental, social and corporate governance (ESG) analysis.  

For example, so called sentiment analysis algorithms are touted as being able to process natural language in new and exciting ways. In this instance, the technology could be used by investors when interviewing company management and so infer from words used in conversations to determine how committed a company appears to be about mitigating environmental risks.  

However, again it’s worth remembering that AI is reliant upon inputted data, and so in a relatively new area such as ESG there’s plenty of scope for improvement as the investment sector matures.  

Validate, not replace

Rather than risk burying heads in the sand, it would seem sensible that both clients and their wealth providers remain open to rapid advances in technology and how AI can be used, in combination with human expertise, to potentially improve our experiences and financial outcomes.  

Developments in AI are very exciting, however its use in financial services is about validating human judgement, not replacing it. The technology cannot (yet) replace human critical thinking, individual research and proven investment techniques that are built over years of training and practice.  

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest.