Speaking with Delano, behavioural economist Shlomo Benartzi highlighted the transformative potential of artificial intelligence in financial planning, emphasising its ability to democratise access to comprehensive financial advice beyond the wealthy by addressing investments, savings, debt, and insurance. He co-founded the Save More Tomorrow (Smart) programme, which nudges employees to save more, and Pensionplus, a retirement planning startup, and is based in Los Angeles. Benartzi will be speaking on “Can artificial intelligence replace your wealth manager? ” during the Swissquote Investment Day 2024 event on 14 March.
Kangkan Halder: How do you see digital platforms and AI transforming financial planning and decision-making?
Shlomo Benartzi: I think AI has the potential to transform financial planning and advice. I’m most excited by the ability of AI to greatly expand access to financial advice, ensuring that everyone–and not just those with significant wealth–can get help managing their financial lives.
It will also expand the range of financial services. Right now, financial advice is narrowly focused on investments, which tend to benefit those wealthy enough to care about alpha. I hope we can use AI to define advice more broadly, so it also includes savings, debt and insurance decisions.
What potential does AI have in correcting behavioural finance errors like procrastination and myopic loss aversion, particularly in savings and investments?
AI has the potential to become a critical tool to help people make smarter and more holistic financial decisions. However, we also have to ensure that AI is de-biased, as current large language models exhibit many human biases. In fact, LLMs can often be more overconfident than humans. They also exhibit other biases such as the [reasoning-based] deductibility bias.
What ethical considerations should companies focus on as AI becomes more integrated into personal finance to enhance rather than exploit consumer behaviour?
Everyone is concerned about how people are going to be exploited by AI–there’s much discussion of the potential downside. But I think we should also consider the upside, because these tools will be more transparent, auditable and consistent than humans.
The good news is that AIs are almost certainly easier to debias than humans by applying metarules.
How do you envision the evolution of retirement planning with AI and digital tools, and are there any innovations that particularly excite or concern you?
I think AI can help make the process of saving for retirement and drawing down your assets far easier. Right now, the process can be confusing and intimidating… reducing the urge to panic and sell.
How can digital platforms and AI be made to deliver effective decision nudges without manipulating users?
The key is transparency and auditability. Fortunately, it’s likely that AI is easier to monitor for conflicts of interest than a human adviser. If the software starts recommending investments with high-fees or mortgages with high interest rates when there are cheaper alternatives, the AI tools might even be able to auto-correct, like spell-check fixing a typo.
AI is well suited to reduce, if not eliminate, the digital divide.
Can you elaborate on further developing AI to debias financial decisions and the challenges involved?
One of the primary value-adds of a financial adviser is debiasing, or helping clients avoid costly mistakes caused by behavioural tendencies. Unfortunately, research suggests that that a good adviser tries to minimise.
To improve the performance of AI advisers, we need to create metarules–that’s a rule that governs other rules–to help the software override these biases… AIs are almost certainly easier to debias than humans by applying metarules. We can’t directly edit the software running inside our head. But we can revise our AI models.
How can the digital divide be addressed to make digital and AI tools for financial planning accessible and beneficial for all socio-economic groups?
Navigating complicated financial websites takes a lot of digital experience. In contrast, chatting with AI is extremely easy, and takes little financial or digital know-how. In my opinion, AI is well suited to reduce, if not eliminate, the digital divide.
What role does AI have in enhancing financial education and literacy, especially for the digitally savvy but financially inexperienced younger generations?
Financial education delivers extremely limited results unless it’s delivered on a just-in-time basis… But AI can do it 24/7 when needed.
Considering privacy concerns, how do you balance the benefits and risks of using predictive analytics in personal finance?
This is an issue that regulators must address as soon as possible… It’s a really complicated question.
I have a hunch that we’re on the cusp of a transformative change.
How can AI’s empathy, compared to a human advisor’s empathy, be used to improve the advisor-client relationship during market volatility?
The good news is that ChatGPT excels at empathy… The technology can help them become more human, or at least scale their humanity.
Looking forward, how do you see AI’s role in financial advisory changing, and its impact on the quality and accessibility of financial advice?
My hope is that we’re able to use AI to democratise access to holistic financial advice. This means helping people make a wide range of financial decisions, such as those involving savings and debt management… But this will require that we use LLMs primarily as communication engines that rely on advanced financial engines that have been tested for reliability, transparency and consistency.
What are your expectations for your trip to Luxembourg for the Swissquote Investment Day?
I’m excited to explore Luxembourg for the first time, and looking forward to the Swissquote Investment Day. For me, it’s an opportunity to meet and exchange ideas with European investment professionals. I’m especially interested in discussions about topics that are critical to financial wellbeing in the 21st century, such as using AI to deliver holistic financial advice and bringing behavioural insights to pensions.
ai-to-greatly-expand-access-to-financial-advice-shlomo-benartzi
