Artificial Intelligence as Ethical Financial Advisors: MIT Researchers’ Vision
Researchers from MIT have taken it even a step further and predicted that artificial intelligence (AI) may soon operate as an ethical financial advisor. Artificial intelligence has managed to make an impact in many industries already, but its ability to transform financial services is especially significant.
The team is zeroing in on the long-sought-after “Holy Grail” of artificial intelligence — financial advice, says Andrew Lo (pictured), professor of finance at the MIT Sloan School of Management and director, Laboratory for Financial Engineering. Lo estimates they will be able to produce software that complies with SEC rules for classifying as a fiduciary within two or three years.
The Challenges of AI in Financial Advice
Now more than ever, the problem with using artificial intelligence for financial advice is that by nature it behaves like a sociopath. In their study paper, Lo and his coauthor wrote that AI could also argue both sides on an issue without being biased by a connotation for any side. The empathy gap is a big stumbling block to gaining and keeping users’ trust — something paramount in the financial advice.
To tackle these, the researchers suggest teaching artificial intelligence to be more emotionally intelligent in its dealings with humans. That may mean having the machine ask basic questions like “How are you? when offering advice tailored to your financial needs. Sophisticated artificial intelligence might even sense an emotional state based on audio or video clues, as if from a doctor’s bedside manner.
The Potential of AI in Financial Planning
Though there are challenges, the potential upside of using artificial intelligence in financial planning is huge. Companies like Canadian startup Conquest Planning have already created AI-based financial-planning software using a specifically an expert system called the blackboard architecture. It holds crucial info re tax code, how cash flow mechanics work, retirement account structuring protocols and fiduciary rules that permit the generation of financial flowerbeds specific to one’s personal data.
Mark McGrath, a planner with PWL Capital in Canada who has used Conquest’s software said it allows his clients to walk away with better financial plans than he would create if working manually. The system can analyse a huge number of permutations and options, which is simply beyond the capability of any human advisor to optimise.
The Future of AI in Financial Services
Artificial intelligence has so far made its way in the financial services and is here to stay for a long time. Lo and his crew imagine a future where we turn to AI advisors rather than human ones, hanging out additional dollars for this provider.
But certainly this progression will be filled with difficulties. If human employees are being displaced by machines in the financial services sector, this could result in widescale social unrest and hence may have to be handled sensitively. Policymakers should be concerned about how rapidly this displacement will take place, and need to consider retraining programs for impacted advisers – perhaps with some government support, Lo says.
Final Thought
Our use of artificial intelligence with the prospect for some to replace human financial advisors can be greeted by some as an exciting, others a daunting one. Although the technology offers a lot of hope in providing better personal financial advice with this kind of effectiveness, you will also have to build trust and look at implications for workforce but disruption.
Obviously this is the goal long term, but as we shall see tomorrow when Ciocchetti reports on how regulations impact such efforts in Boston and at large firms — including differences abroad– it shows moving toward creating AI-compliant financial advisors not only changes where you sit technically speaking, working for a non-profit lab under strict guidelines sponsored by IBM to meet regulatory approvals.
Researchers, policymakers and industry professionals will need to come together as collaborators in a broad dialogue that considers these benefits while addressing potential challenges with responsibility.
