Humans are Irreplaceable as Advisors: Why Artificial Intelligence is No Match for Human Beings

What’s in this article:

• Financial, Estate, and Legacy Planning
• Investing
• Decision-making
• Security
• Service
• Final Thoughts

Artificial intelligence is getting smarter and more capable every moment; it’s staggering to contemplate its capacity as we hover on the edge of what the tech industry promises will be an AI revolution. AI in the financial services industry is already accomplishing a multitude of functions, the list of which seems to expand almost daily. But even so, we think it is likely that most people will still be speaking with a human advisor even a decade or more from now, no matter how proficient and helpful artificial intelligence becomes.

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Industries in all sectors are experiencing growing excitement around the potential for artificial intelligence to transform the way we work, building in efficiencies and streamlining processes. Investment professionals are finding areas and avenues where AI can be a useful tool in better serving clients. Coldstream, like other investment firms, has been exploring how to use AI tools to better manage and analyze data, communicate with greater clarity, and compile and evaluate research. But as we integrate these AI tools and discover what they can and can’t (or shouldn’t) do, it becomes ever clearer how human-centric the advisory relationship is and should be. An advisor’s job goes far beyond maximizing numbers in a spreadsheet; it is about ensuring that our clients can live the lives they want. We believe this will always require empathy, creative thinking, big-picture understanding, and a human touch.

The future of wealth management will most certainly combine artificial intelligence with human guidance in a variety of configurations. Clients will have the ability to select the balance of human to AI that best suits their needs and objectives, as well as matching their comfort level and familiarity with artificial intelligence agents and platforms. While we are excited to integrate AI and enlist it to automate routine tasks, simplify administrative work, and help with technical planning processes, we also think the human connection needs to remain at the core of what we do. In this article, we explain why humans are irreplaceable as advisors, and why artificial intelligence is no match for human beings when it comes to the overall service we provide.

Financial, Estate, and Legacy Planning

Financial planning is not just a leveled-up version of accounting, where you simply make sure all the numbers add up correctly. It is a much more complex process that involves finding balance among competing priorities, identifying key values and aligning your financial strategy to support them, and building a strategic framework that allows for enough flexibility to adapt to shifting market conditions and continually changing family needs.

There is no single formula that solves for the financial planning problem—a financial planner needs to understand the interconnected web of goals, plans, hopes, practical needs, available resources, and range of financial tools. Sometimes they need to read between the lines to pick up on subtle worries or concerns that plague a family in order to propose a solution the family didn’t know they were looking for. Or draw from experiences with other clients to be able to make creative suggestions in advance of the actual need.

One of the reasons we hire experts in any field is because we understand that we don’t know what we don’t know. We don’t just rely on them to answer our questions—we need them to point us in the direction of what questions we should ask. A good wealth planner prompts their clients to think about things they might not have otherwise—to explore more deeply their values, priorities, and dreams for the future.

Many financial decisions don’t come with a right or wrong answer, but different factors to weigh. People look to their financial planner to help them talk through those decisions, brainstorm, and serve as a sounding board as they weigh their options. This requires empathy and understanding, not just an algorithm.

Financial planning isn’t just about maximizing the numbers on a page, but about ensuring that clients can live the lives they want. We believe this will always require a human touch and socially intelligent coordination.

Investing

Artificial intelligence has shown promise in being able to evaluate businesses, find investment opportunities, and model historical data, all very useful tasks for investors. But AI by its nature draws on the past to generate its output. Investing, on the other hand, is by its nature forward-looking—and there is no algorithm that can accurately predict future market movements. In investing, it is often the contrarians that have an advantage rather than those who stay in line with expectations.

Investment professionals must be able to analyze historical data and assess quantifiable factors. But they also must be able to look forward and anticipate trends, imagine possible futures, and foresee potential risks. The global economy is so complex and interwoven that even given massive amounts of data, experts struggle to forecast shifts accurately. Having context and perspective matters when assessing geopolitical risks and seeking out areas of opportunity. We believe the most successful investors must incorporate an element of creativity and imagination into their process.

In investing, “risk” is often translated as underperformance relative to a benchmark. But for many clients, risk is a more nuanced concept—and it’s not the same for everyone. Some people have a very low tolerance for losing principal and see that as the greatest risk, whereas others may see the risk of failing to keep up with inflation as more important. Others may look at anything less than aggressive growth investing as an opportunity risk. Some organizations are deeply concerned with headline risk, or the risk of taking chances their peers aren’t taking. The point is that individuals view risk differently, and the balance of different risks is not static even for individuals. An investment professional’s job is not just to maximize a portfolio, but to do so relative to their client’s goals and risk tolerance. Understanding that risk profile is a deeply critical part of the picture. An artificial intelligence algorithm may be able to incorporate and work toward optimizing for a defined risk tolerance, but achieving the best definition requires the nuance and balance that comes from human understanding.

AI will be a valuable tool for investors and investment professionals, but humans have an important perspective when it comes to the forward-looking nature of investing, the complexity of macroeconomic analysis, and the nuance of portfolio construction.

Decision-making

Throughout our lives, we look to experts to guide us through areas in which we do not have the time or inclination to become our own experts. An investment advisor is one such guide. As families navigate transitions such as buying and selling properties, business succession, marriage and divorce, philanthropic strategy, and estate planning, there are numerous decisions that need to be made. Most families look for input from outside experts and others close to them to help them make difficult choices.

Artificial intelligence is already proving itself to be a valuable resource in helping people weigh different options and examine possible outcomes, and can even serve as a sounding board to talk through a difficult decision. Sometimes, however, what’s needed goes beyond listing pros and cons or calculating probabilities. When faced with potentially life-changing decisions, many people appreciate having someone who cares listen and weigh in. People may need encouragement to take risks when warranted, or discouragement when risks are unwise. Sometimes reassurance that they are making the right choices is important. And someone deeply familiar with the situation may be able to offer ideas for options or solutions they haven’t considered.

Advisors offer guidance in decision-making that goes beyond analyzing options and weighing pros and cons. They listen and help explore possibilities, sharing knowledge and expertise to provide reassurance and peace of mind.

Security

Integrating artificial intelligence into the financial advising world requires profound vigilance as it pertains to information security. Personal and identifying data must be rigorously secured and separated from AI platforms that are connected to the internet. The industry is still in the process of building systems that are able to combine the functionalities of current AI models while operating in a digitally secure environment.

There will probably come a time when a client’s full financial picture may be visible to an artificial intelligence agent without incurring cyber-risks, but for the time being, most AI systems being used are either general-purpose (general information and data analysis, hypothetical modeling, compiling and evaluating research, administrative tasks) or are highly specific tools limited to certain functions. The potential for data breaches remains a serious concern, and experts recommend against sharing too much personal information with AI tools.

Without full insight into the details of an individual’s or family’s financial situation, artificial intelligence can answer particular questions or help parse specific issues, but doesn’t have the capability to oversee or manage a family’s assets as a whole. Human oversight is still necessary to implementing a comprehensive wealth strategy.

Also, having human stopgaps along the way in the process of moving assets and making transactions adds layers of security that can be critical in an era of cyberfraud and digital scams.

Information and data security is a top concern for all of us. Personal data stored in an AI app or conversation may be vulnerable to cyberthreats, limiting the use case for artificial intelligence in comprehensive financial planning.

Service

We’ve all had the experience of navigating automated menus and AI chatbots when what you really need is to speak to a human being who can quickly grasp a problem in its totality and direct you to a solution. Artificial intelligence, while being developed to provide customer service, is still no match for speaking with a live human being who is sensitive to the subtleties of human communication and empathy. We believe that our clients deserve real service—the kind that can only come from a trusted relationship based on caring, curiosity, understanding, and connection.

Service is people helping people. Artificial intelligence can serve us, but real client service requires human connection.

Final Thoughts

As we integrate AI tools into our processes, we are deeply mindful of the fact that wealth management is very human-centric and relationship-oriented. Our clients have complex lives and depend on their advisors to understand the intricacies of their situation and coordinate a variety of moving parts. We see AI as a complement to this, so we look to it to provide us more space to focus on empathy, strategy, relationship, and creative thinking. We love that it offers automation, efficiencies, data processing, and technical support.

We expect that leaning into AI will build opportunities to enhance the way we serve clients, but also recognize that trust and human connection are central to the advisory relationship we want to build with our clients.

This article is for informational and educational purposes only and does not constitute legal, tax, or financial advice. Readers should consult with qualified professionals regarding their specific circumstances.