Could ChatGPT really help you manage your finances?

The rise of large language models (LLMs) like ChatGPT, Claude, and Gemini have taken the world by storm in recent years. Of these, OpenAI’s ChatGPT is certainly the most popular model.

In essence, an LLM is designed to understand, generate, and interact using human language. This software can excel at answering questions, summarising text, and even generating “new” pieces of writing.

LLMs are trained on large datasets that allow them to recognise patterns, understand context, and, for the most part, produce coherent and relevant responses to many queries.

So, it’s no wonder that these AI tools are being used by people all over the world for tasks ranging from making shopping lists to building websites from scratch. More people are even turning to AI tools such as ChatGPT to help them manage their finances.

While this can be a useful starting point for some, using AI to manage your finances may not be the right move for you. Let’s dive into why that might be.

Understanding what ChatGPT can do is the first step to understanding what it can’t

On the surface, tools like ChatGPT can be a helpful resource for general financial education and managing basic tasks.

It can provide general information on a wide range of financial topics, such as:

• Defining financial jargon. If you need to understand certain terminology or find out the difference between two similar concepts, ChatGPT could explain it in simple terms.
• Creating basic budgets. ChatGPT could help you create a basic budget template and make suggestions for categories or spending percentages.
• Breaking down hypothetical scenarios. You could ask ChatGPT to model different scenarios to help you understand your options. For example, you could find out more about how much you would have saved if you put aside a certain amount for a set period, versus spending the same amount on luxuries.
• Generating checklists. ChatGPT could help you create useful checklists for tasks such as applying for a mortgage or even setting up a will.

All that being said, while AI tools can provide useful information, they are also known for getting things wrong.

Because these tools are trained on sets of data, if something is missing from that data, it won’t appear in your answers. So, ChatGPT could generate a checklist for a mortgage application, but it might miss helpful information about current housing market trends.

While the BBC reports that ChatGPT has been able to access the internet and browse the web since 2023, its previous database was essentially “frozen in time”. Indeed, despite being released in 2022, it wasn’t able to reference anything after September 2021.

Other LLMs may not have the same privilege and are therefore not necessarily able to provide accurate and timely information.

ChatGPT and other AI programmes have inherent flaws and carry a certain level of risk

Despite its helpful applications, relying on ChatGPT to make serious financial decisions could pose a significant risk.

These technologies have several fundamental flaws that make it unsuitable for giving personal financial advice. These include:

ChatGPT doesn’t understand your personal circumstances

Unlike speaking to another human being, AI models are unlikely to understand context and nuance. While you could tell it how much you’d like to make from your investments, it won’t understand your risk tolerance. Remember, financial advice is a deeply personal endeavour, and an AI-generated answer could not only be unhelpful but potentially dangerous.

This could be because LLMs are unable to understand context that they are not explicitly given. So, at best, you’ll receive a generic answer that doesn’t apply to your unique situation. At worst, you’ll receive an incorrect answer that prompts you to make an unwise decision.

Research presented by the University of St. Gallen also highlights the inherent bias carried by AI models. When asked for investment advice, it found that AI models tended towards “trendy” sectors, such as technology and consumer goods. It largely neglected to include investments in more stable industries to balance risk.

It also found that the models heavily favoured American businesses, which could prove damaging if you’re trying to maintain a diverse portfolio.

You could be given the wrong answer to your questions

While LLMs are trained on large sets of data, their knowledge isn’t always relevant. In some cases, they can be days, weeks, or even months behind. Indeed, until fairly recently, ChatGPT could only access information from before September 2021.

Remember that financial regulations and tax laws can change, and market conditions may shift in a matter of minutes.

Relying on outdated information could lead to uninformed decision making, which isn’t ideal for a sound financial plan.

For example, tax-free allowances or interest rates may have changed since the AI model was last updated. A human adviser is professionally obliged to stay up-to-date with market changes, meaning we can provide accurate and meaningful information. On top of this, we’ll tailor the recommendations we make based on our understanding of you as a person, not just your on-paper financial plan.

Your personal information might not be secure

To receive meaningful advice from an AI, you would need to share sensitive information and personal data. There are serious concerns about data privacy and security when using these platforms, which are still in their infancy.

Financial planners, on the other hand, are bound by strict data protection laws and confidentiality agreements. Sharing your personal information with a public AI model, where it could be used for training purposes or become vulnerable to a data breach, can pose a significant risk.

You won’t have as much regulatory protection

In the UK, financial planners who provide regulated financial advice are authorised and regulated by the Financial Conduct Authority (FCA). This means we are legally accountable for the advice we give, and if something goes wrong, clients may be able to seek compensation or redress through the Financial Ombudsman Service and the Financial Services Compensation Scheme.

ChatGPT is not a regulated entity. If you were to act on its advice and suffer a financial loss, you would, unfortunately, have no legal recourse or other protection.

Indeed, the FCA has repeatedly warned of the dangers associated with taking financial advice from unregulated sources, and this includes LLMs and other AI tools.

AI can be a useful tool, but it isn’t a replacement for personal advice

AI models such as ChatGPT can be helpful for financial education, provided you’re conducting your own further research to validate its claims. It can also be a useful starting point for understanding complicated topics.

However, they are simply not a replacement for the bespoke advice of a qualified financial planner.

For important financial decisions, such as pension planning, investments, estate planning, and more, the human element is irreplaceable.

So, before heading to ChatGPT for financial advice, why not get in touch with me first?

Email Marnel.Stafford@fosterdenovo.com or call 07305 970959 or 0207 469 2800 to find out more about how I can help you.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.