Will Artificial Intelligence Replace Financial Advisors?

Nearly 60% of investors look online for investment advice, and the vast majority made portfolio changes as a result of AI, a survey says.

By Ed Prince

High-net-worth and mass-affluent individuals are embracing generative AI for investment advice while also turning to social media platforms like X, TikTok and Instagram, a TD Wealth client survey has found.

But financial advisors shouldn’t worry that artificial intelligence platforms will replace them, says Jim Beam, TD Wealth’s head of investment management, brokerage, planning, retirement and strategy, U.S.

Wealthy clients will still need their advisor’s counsel, especially as they navigate the uncharted waters of AI, he says.

“The future is upon us, right? We know that. The pandemic certainly accelerated digital adoption,” Beam says. “Obviously generative AI is relatively new, but investors seeking advice from different mediums is not new.”

TD Wealth’s survey of 500 high-net-worth and mass-affluent investors found that over half (57%) of respondents reported using an online search engine or social media to source investment advice in the past 12 months.

The results demonstrate “the democratized nature of investment advice and how digitally native investors are taking control of their investments without a financial advisor,” TD Wealth states in a press release.

AI’s influence growing

The survey found that investors using social media and online platforms for financial advice made changes to their portfolios based on advice from generative AI (85%), Twitter (64%), TikTok (63%) and Instagram (62%). This is the first time the survey has asked about AI and social media.

Advisors won’t be squeezed out, though, Beam assures,

“The advisor plays a big role, because there will always be the new shiny toy,” he says. “And not all of them will be bad, right? It doesn’t mean cryptocurrency is bad. Or other types of investments that are not fully understood at the moment — it doesn’t mean they’re bad. But I think an advisor plays a critical role in educating the customer what risks they are taking by embarking on or buying these new types of assets.”

However, the survey found that while most investors have a long-term investment plan, only 64% of those work with a financial advisor while 29% invest on their own.

Some investors report that they stopped working with a financial advisor on their long-term investment plans. Of those, 62% say it became too costly to continue working with a financial advisor, 38% say that they did not like how their portfolio was performing and 32% say that they did not receive any new investment ideas from their financial advisor.

Young more likely to explore new investments

TD Wealth reported that 74% of investors aged 18 to 44 have explored new investments for their investment portfolios, but only 42% of those aged 45 to 65, and 17% older than 65 explored new investments.

Among the younger respondents, the top three investment opportunities explored were: private markets, including private equity, private credit, real estate and infrastructure; digital assets, including cryptocurrency and NFTs; and environmental, social and governance investing, or ESG.

Beam said the results are unsurprising, but not because older investors are less inclined to try something new.

“The statistics align with what we would think the results would be, as investors approach retirement … a different part of their financial life cycle, more risk averse. … It would make sense that those types of investors would and or are already staying the course versus the emerging generation that could potentially bear losses from some of these in the short term. That may not impact them as much as someone that will be relying on their assets for drawdown in the near future.”

Online platforms can encourage risky investing

Beam said that while AI and social media can be useful for the investor, they also present risks, especially by encouraging impulsive investment behavior.

“A lot of these sources that we’re talking about — Twitter, TikTok, Instagram — they hit an emotional chord, and investors want to take action immediately. But oftentimes, that’s not the right approach. The right approach is to stay invested for the long term to balance out your risk. And that’s usually what wins, but it doesn’t necessarily hit an emotional chord. You’re not really excited, necessarily, by having a balanced portfolio that is growing generally, oftentimes, maybe growing slower than what people see in the headlines.”

But it’s a problem that’s been around for a long time, he added. Only the platforms have changed.

“If you rewind 10 years before some of these platforms had billions of users, it was the Bloombergs and CNBCs of the world. And in some cases, maybe not the best advice, but the infomercials at night. Access to information is really prevalent right now, and oftentimes probably difficult for the individual to actually discern what’s good information and not.”

Beam says he did not know of any clients who had suffered a financial setback because of bad advice from social media or an AI platform, although he added that doesn’t mean such losses aren’t happening.

“We all like to talk about our successes, our wins, and not talk about our losses when we share investing information with each other. So, I think that the psychology of that probably holds true here as well. You may not hear about the losses,” he says.

Advisors must adapt

The results of the TD Wealth survey show that financial advisors need to adapt as clients seek new investment services and options, Beam says.

“If you look at the industry overall over the last decade or so, it comes down to consumer preference, how they want to interact with their financial institution, and in what format. You think about the democratization of investing with the ‘Robin Hoods’ being accelerated through the pandemic, the do-it-yourself or the hybrid approach where you do a little bit by yourself and you get some guidance by an advisor — what I’ll say a full-fledged advisor — helping you through your financial lifecycle.”

In a four-decade career in journalism, Ed Prince has served as an editor with many of New Jersey’s leading newspapers, including the Star-Ledger, Asbury Park Press and Home News Tribune.

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