Use AI for investing at your own risk, warns watchdog
The financial watchdog has warned Brits using AI for investment advice that they may not be protected if things go wrong as more people turn to online chatbots.
Four in five inexperienced investors admitted to using AI tools for help with their investment decision, according to the latest research from the Financial Conduct Authority (FCA).
The findings come as people increasingly turn to online chatbots for help, as traditional financial advice remains out of reach for many.
Young people in particular are shunning advisers for chatbots. Over 50 per cent of 18 to 40 year olds said they trust AI tools to make decisions for them.
No safety net
But the FCA has warned that people may be underestimating the risks that come with taking on unregulated advice from chatbots.
The watchdog does not regulate AI-generated financial information, but 44 per cent of Brits believed they did.
Meanwhile, nearly a third thought that they could receive compensation from the Financial Services Compensation Scheme or the financial ombudsman if AI advice went wrong.
But as AI falls out of the regulator’s scope it does not protect customers from potential harm caused by the technology.
This includes popular chatbots such as ChatGPT and Google Gemini.
Lucy Castledine, director of consumer investments at the FCA, said: “AI can help you research companies, understand jargon or explore options before you make a decision.
“But you need to understand how you’re protected and continue to use your own judgement.”
Tackling the problem
Financial advisers are also warning consumers of the risk of using AI, arguing it can not replicate the tailored advice given by a professional.
“AI is rapidly becoming the first port of call for a new generation of retail investors, but confidence is clearly running ahead of understanding,” Rob Hillock, head of personal financial planning at Broadstone, said:
“It cannot necessarily replicate the personalised assessment needed to determine whether an investment is suitable for an individual’s objectives, time horizon, appetite for risk and capacity for loss.”
But Graeme Devlin, head of risk, regulation and compliance at Capco, urged wealth managers not to “treat this simply as an education problem” but instead look at what they must do to pull inventors over
Devlin said: “AI has changed what people expect. A chatbot can give someone an answer in seconds, so wealth managers cannot expect them to accept a slow and complicated route into advice.”
“The proposition then has to offer more than another answer. It needs to understand the client’s wider financial position, goals, and appetite for risk, and turn that into suitable advice with ongoing accountability.
“The adviser’s role is not to repeat information a client can already find, it is to ask better questions, challenge assumptions, spot what the technology has missed and help the client make a decision they can live with.”