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Using AI in place of a financial advisor? 5 common mistakes to avoid

You might have found yourself there: Asking ChatGPT whether you should max out your 401(k) or put some extra cash flow toward your mortgage. Its answer was incredibly thorough, easy to understand, and maybe even felt catered to your personal context. It could even be the correct answer for you.

Some questions are well-suited for using AI as a financial tool, but there are serious limitations to the current tools, and one of the biggest limitations? These tools will never tell you when their limitations come up. ChatGPT could sound just as confident answering a question that is entirely within its knowledge base and domain as it would answering a question that is beyond its limits.

The solution is to use it carefully, like the powerful tool that it is—you are responsible for having the discrimination that the tool itself lacks.

Not sure what that looks like? broke down exactly how to use AI as a financial tool and when it’s time to call in a human professional.

AI can be a surprisingly good financial advisor

One of the primary functions of a financial advisor used to be breaking down complex financial topics in plain English. What’s the difference between a Roth and a traditional 401(k)? How does tax-loss harvesting work? What are the different types of stock options?

These are the types of questions that financial advisors used to field one-on-one all the time, but now with the dual advents of first, the internet, and now, AI, it’s easy to find detailed answers on your own, whether you prefer to learn from essays, videos, or interactive chatbots.

Here are the times when AI can be helpful (although it is still recommended to always check your sources):

• Explaining financial concepts in plain English: Struggling to understand something like a mega backdoor Roth, tax-loss harvesting, or how stock options work? If you find the way AI breaks things down engaging, any major LLM should be able to accurately explain these concepts.
• Summarizing complex and large documents: Financial decisions can come with documents that were built by lawyers, for lawyers—due diligence documentation before making an investment decision, or personal documents such as estate materials or contracts. While in an ideal world, everyone would read these documents word for word, AI can be helpful to explain and summarize these complex legal documents.
• In-the-moment behavioral prompts: Worried that you might be buying into a scam, or selling due to panic? Especially if you don’t have a dedicated certified financial planner on your team, a modern LLM should be able to gut-check an impulsive decision. However, be warned that if you push most LLMs, they could agree with you even on a bad decision.

That more people are able to access detailed financial information is a tremendous advantage of AI. For many communities, it was the exclusion from knowledge about investing tools and strategies that derailed the building of generational wealth.

Think of using an LLM for financial questions like going to WebMD or Healthline for medical advice. It can be incredibly useful, immediate, and reassuring, a great way to deal with the minor problems and questions that pepper everyday life. However, if a problem reaches the point of serious concern—financial or medical—it might be time to call in an expert.

The 5 Mistakes People Make Using AI for Financial Decisions

Here are the five things to watch out for to use AI for your financial questions like a professional.

Mistake #1: Relying on outdated information

All AI models are trained on old data, although this is a problem developers are constantly attempting to solve. Most models are now able to access current information by browsing the web, but that doesn’t mean that they’re pulling the latest or most accurate numbers every time.

A model may default to its training data rather than looking to the web, or cite an older page over a newer one. FINRA, the Financial Industry Regulatory Authority, released a on the subject of AI and Machine Learning that specifically flagged “outdated training data leading to concept drift” as one of the biggest risks of working with AI.

Mistake #2: Trusting confident answers that are straight up wrong

LLMs are incentivized to answer you, and they tend to agree with your framing. JurisTech's tested six leading models on financial documents with deliberately missing data. Four of six models fabricated figures, and two did so confidently, without disclosing any uncertainty. That means you would have no idea, unless you were fastidiously checking your sources, that the numbers being given to you were wrong.

The boring solution? Check the sources your AI tool gives you as well as the numbers it uses for any important calculations, particularly around taxes and retirement.

Mistake #3: Missing the full tax picture

One of the biggest advantages of working with a real certified public accountant or financial advisor rather than online tax-filing software and spreadsheets is that they can find strategies and advantages that you simply don’t know you don’t know.

One area where many LLMs are currently weak is “digging” for answers, or asking relevant follow-up questions. If you don’t know how to ask your LLM about a particular tax strategy or tax-advantaged account, it’s highly likely you won’t see it mentioned.

If there are documents or information you forget to surface to your AI—such as noting your or including your high-yield savings account income—it most likely will not ask for them.

Another example of real complexity that an AI could overlook: Recommending a due to your income without knowing that you have a large coming up this year, because you forgot to tell it. Most LLMs won’t flag that for you, leaving you with potential material tax consequences.

Mistake #4: Treating AI recommendations as fiduciary advice

You may assume that because you’ve trained your LLM, and because it’s obviously —it’s not earning anything at all, it’s not even a person—your AI tool is the same as a fiduciary.

Your AI tool is not likely to tell you to invest in products against your best interest, such as a sub-optimal whole life insurance plan or actively managed funds with high fees. After all, it has no incentive to do so. So in this way, you would be correct.

However, the other element of fiduciary duty is responsibility, which AI cannot assume. FINRA has been explicit about this in their statement on AI: AI recommendations and generations are not a legal defense for bad financial practice.

A financial firm that you employ with a fiduciary financial advisor is legally responsible for giving financially sound recommendations. AI holds no such responsibility.

Mistake #5: Overestimating AI-generated investment picks

According to an , LLM-generated portfolios tend to be heavily concentrated in “trendworthy” stocks. Recently, that has meant large-cap tech, with an emphasis on AI and semiconductors.

Their picks appear to be driven by pure media buzz rather than any analysis of financial fundamentals, which makes sense based on how LLMs operate, gather sources, and build trust.

The short answer is, you may not realize the level of risk you’re taking on if you trust AI with your portfolio, particularly to pick individual stocks. Think of it this way: Would you draw your portfolio directly from the most buzzworthy stocks on Reddit? Because that may be fairly similar to how your AI is selecting them.

On the other hand, if AI is telling you to invest in broad-market ETFs with a low cost basis, and you have a long time horizon, that is a very safe and well-tested strategy to execute. Of course, we would still recommend doing your own due diligence, as any investment has risk.

The biggest risk of an AI financial advisor: Behavioral finance

The biggest risk of using an AI as your financial advisor isn’t simply that you need to check its sources or that you should do your own due diligence before investing in any individual stocks. Instead, it’s that AI is well-known for its persistent problem of being a “yes man,” even when people need closer guidance.

Most of the basic concepts of personal finance are easy to understand and adopt. Investing in broad-market ETFs, understanding tax-advantaged accounts, and setting a budget are all easy to start. Where most people truly need support is in execution.

If you’re burnt out and you’ve already decided to retire even though you’re a million dollars short of , AI might encourage and validate you, rather than talk in practical terms.

If you create a budget with no built-in wiggle room for vacations, entertainment, or late-night Ubers, ChatGPT might say you’ve nailed it—while a professional financial advisor that can review your last year of expenses knows that isn’t practical for your life.

If you and your spouse can’t decide on the line between healthy cash flow and overspending, ChatGPT is unlikely to come up with a healthy compromise and more likely to agree with your side enthusiastically.

Research is already demonstrating that LLMs are , showing that they are liable to fall into the exact behavioral patterns that professional financial advisors set out to counter.

The behavioral coaching advantage of a human advisor is approximately half of the attributes to working with a financial advisor. That’s as much as a 1.5% return per year that a highly agreeable AI with a limited context window can’t offer in the same way.

How to use AI as a financial tool, not a financial advisor

Need an easy way to differentiate between when a task can be easily solved with current LLMs, and when it’s time to call in a pro? Here are our guidelines:

Is this a “learning” question?

Some examples of “learning” questions would include:

• "What's the difference between a traditional and Roth IRA?"
• "How does tax-loss harvesting work?"
• "What's an expense ratio?"
• “How do RSUs get taxed?”

Is this a decision-making question?

Some examples of decision-making questions, with potential long-term and/or irreversible consequences, would include:

• "Should I do a Roth conversion this year?"
• "When should I exercise my ISOs?"
• "How should I sequence my account withdrawals in retirement?"
• "Does it make more sense to pay off my mortgage or invest the extra cash?"

The key question to ask yourself: Would a mistake here cost me money I can't get back?

Why the best financial strategy uses both AI and human expertise

FINRA, as well as the World Economic Forum, are pointing toward a hybrid model for the use of AI in the financial advisory industry, both now and in the future: AI supporting research, summarizing complex documentation, and financial education, while humans handle judgment, accountability, and behavioral coaching.

However, while more than surveyed by the London Stock Exchange Group and ThoughtLab in 2024 were open to AI-supported advisors in portfolio management, it’s important to stay aware of the risks that exist when striking out on your own with AI—especially when making decisions that will have long-term implications for your wealth.

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