Depending on where you live, you may have different regulations around who (or what) is allowed to give personal financial advice. Regardless of where you live, ChatGPT can do it, and has not been regulated yet.
Robo-advise, which is what ChatGPT spitting out answers to questions such as “At age 29, how much do I have to invest a month to retire with $10,000,000 by age 65 assuming a 7% average annual return and taking into account inflation?” would count as, is restricted in large parts of the world, the States and China being (as is often the case) notable exceptions. There’s a plethora of articles and videos out there where people are asking ChatGPT to give them financial advice. On first glance, as long as you can give it a multitude of details (e.g. your mortgage balance, interest rate etc.) it can tell you when you’ll be debt free, or what your repayments need to be if you want to be debt free by a certain deadline. But in my humble opinion, that’s not financial advice. My phone’s calculator can do that too. The type of questions that ChatGPT trips on are the ‘shoulds’ and the ‘woulds’.
What should I invest in now to get the most returns possible?
Should I be investing more sustainably?
Should I be doing anything to prepare for the Cost of Living crisis (or any other recession really)?
Would it be better to invest this money in risky assets for a possible short-term gain or leave it to the side when my child makes up their mind on wanting to pursue college education?
What you’re asking ChatGPT now is not a calculation. It’s to have an informed opinion given all the different financial and non-financial goals you have, also taking your psychology into account. And ChatGPT cannot do that.
What do people want when looking for financial advice? According to work by Morningstar its to receive actual guidance. Clients aren’t looking for a fix to a very specific problem, they want someone to guide them towards a goal they may not have even thought of themselves. That sounds a bit manipulative, but it’s not meant that way. Let’s try with this example: Most people want to be ‘comfortable’ for retirement. Now I can tell you right now, that if you type that into ChatGPT it’ll give you an answer (see the screenshot below). But it’s just the very standardized 10-item list of things to do to make sure you enter retirement somewhat prepared. Whether you actually do this 10-step plan accurately, and not riddled with optimism bias, the planning fallacy and just good old delusion, well that’s a different story altogether!
Spotting bias like this, and feeding back to you that you are essentially just kidding yourself. Well, that also falls into the remit of a financial advisor.
So should we all just run to financial advisors and leave ChatGPT and other forms of robo-advice behind? No, I don’t think we need to be that extreme. First of all, most people cannot afford financial advisors, which is why they’re falling out of favour. ChatGPT is free, and can do whatever you want it to do in terms of calculation (just don’t ask it for an opinion). What you’re getting is not a complete service, but for a lot of people it might be enough to get a grip on what they ought to be doing. Going back to the retirement example – ChatGPT spit out 10 things we should do. For all of these 10 steps, there is a serious amount of work that you need to do to answer that step properly. Step 1 for example, you need to literally plan out decades worth of costs. That’s no mean feat! Luckily, ChatGPT, as well as many other bloggers and YouTubers, can support you there too. So really, ChatGPT has just made you a step-by-step plan, for which you now have to do all the work. It’s definitely not an easy fix.
So does ChatGPT do financial advice? No, not really. It gives you guidelines for specific problems and is one hell of a calculator, but that’s sort of where it ends. It caveats all it’s answers quite heavily that it’s based on the information you fed into it, or all the information it currently has, with the free version only being up to date to 2021. Do I think the average financial advisor has much to worry from ChatGPT? No, I don’t. Because quite frankly, I don’t think the people who are asking ChatGPT when they could be mortgage free or when they might be able to afford to retire, are the same people who would actively consider signing up with a financial advisor. But that might just be my 2 cents. Let’s ask ChatGPT what it thinks!
From ChatGPT:
Planning for a comfortable retirement involves several key steps. Here are some important considerations to help you prepare for retirement:
Set clear retirement goals: Determine what you envision for your retirement lifestyle. Consider factors such as desired activities, travel plans, housing, healthcare, and any other specific goals you have in mind.
Calculate your retirement expenses: Estimate your future expenses based on your desired lifestyle. Account for essentials like housing, healthcare, transportation, and daily living costs, as well as discretionary expenses like travel and hobbies.
Assess your current financial situation: Evaluate your existing assets, savings, and investments. Understand your current income, expenses, and debts. This will give you a starting point to work with as you plan for retirement.
Create a retirement budget: Develop a budget that aligns with your projected expenses. Factor in inflation and potential changes in your circumstances. Ensure that your income sources, such as Social Security, pensions, and savings, can cover your expected expenses.
Save and invest early: The earlier you start saving for retirement, the more time your investments have to grow. Take advantage of retirement accounts like employer-sponsored plans (e.g., 401(k), 403(b)) and individual retirement accounts (IRAs). Contribute regularly and consider increasing your savings rate over time.
Diversify your investments: Spread your investments across a variety of asset classes (e.g., stocks, bonds, real estate) to reduce risk. Consult with a financial advisor to determine the best investment strategy based on your risk tolerance and retirement goals.
Pay off debts: Prioritize paying off high-interest debts, such as credit cards and personal loans. Reducing your debt burden before retirement can free up more of your income for other purposes.
Consider healthcare costs: Understand the potential healthcare expenses you may face during retirement. Explore options like long-term care insurance or Medicare supplements to mitigate potential healthcare costs.
Plan for Social Security: Familiarize yourself with the rules and benefits of Social Security. Decide when to start receiving benefits based on your financial needs and health status. Delaying benefits beyond the minimum age can result in higher monthly payments.
Continually reassess your retirement plan: Review your retirement plan regularly and make adjustments as needed. Monitor your investments, reassess your goals, and adapt your strategy as circumstances change.
