- New FCA research highlights the risk of individuals placing too much trust in AI to support investment decisions
- AI can help inform the investment research process but shouldn’t be relied upon solely
- It’s important to look for reliable sources of information as AI systems are still learning and might serve up incorrect facts or details
- Investors should be aware of the differences from a compensation perspective between getting information from a computer and a qualified financial adviser
- Why a bad experience with AI risks damaging an individual’s attitude to putting money away for the future
Dan Coatsworth, head of markets at AJ Bell, comments:
“The FCA’s research implies that lots of people are putting their faith in whatever AI suggests with regards to investments, even though they know AI information can be inaccurate.
“It’s natural to hunt the internet for information, particularly if someone only has limited experience of a topic such as investing. AI can be a useful tool in the research process as it can summarise complex information in an easy-to-understand manner. However, the direct response style of AI search results means some people take the answers as gospel or believe they are the best path to follow. This is rarely the case.
“Everyone’s circumstances are different and there is a risk AI systems are making assumptions based on broad circumstances. One person’s attitude to risk and their investment timeframe might be completely different to the next person.
“There is a huge difference between getting information from a computer and a qualified expert. AI is unregulated and there is no protection if you make an investment off the back of an AI suggestion and it goes wrong. In contrast, authorised financial advisers are regulated and using them grants you access to the Financial Ombudsman Service (FOS) if things go wrong, such as receiving the wrong advice. A financial adviser doesn’t guarantee you will make money, but you have protection against unsuitable advice such as being recommended a high-risk investment when you explicitly asked for a low-risk one.
“Hundreds of thousands of people make their own investment decisions in the UK. They can access the Financial Services Compensation Scheme if the investment platform provider gets into trouble, but there is no protection if their own investment decisions don’t work out, including those based on advice provided by AI. That’s why it is important to do thorough research and to double check the source and validity of any information obtained using AI or other means.
“AI systems are still learning, and there is a risk they could be scanning social media or websites for information that is ultimately incorrect. The AI system might not know the details are false, thereby exposing the end user to inaccuracies.
“It’s not that different to the days of old where a shoeshine boy might pass on investment-related information they’ve heard, not knowing if it is true or not. Or a dentist or someone in the gym talking about a stock using second or third-hand information that has become distorted in its retelling.
“It is vital to do your own research with investments and not act blindly simply because someone else – machine or human – says it is a good idea.
“The FCA’s research highlights that many younger people – 18 to 40-year-olds – are putting faith in AI for investing. It would be devastating if they made major investing mistakes by trusting AI as that could dampen their enthusiasm for saving for the future. People having a bad experience might become less willing to put away as much as possible and that could lead to a poor quality of life down the line. Reassuringly, almost three quarters (73%) of those surveyed by the FCA are aware that AI can provide inaccurate information, which shows that the majority aren’t going in blind.”
Using a range of sources when researching investments
“The FCA’s research also highlights that younger people who already own or are considering investments trust AI (56%) more than TV and radio (47%), press (46%) or social media influencers (29%). In practice, it’s important to make sure any investment research comes from a reliable source depending on what investment you’re looking at.
“For example, fund research might involve using data from the Investment Association, investment trust research from the AIC, or specific stock research from the company or sector in question. Combining that information with analysis from a range of experts or sources could be a decent place to start.”
