Author: Karen P. Schaeffer, CFP®

A Credit Karma survey last year found that two-thirds of Americans have turned to Generative Artificial Intelligence (GenAI) for financial advice. In May, MIT Sloan School research suggested that AI can offer surprisingly strong financial guidance. When I asked ChatGPT the same question, it quickly gave itself an enthusiastic review:

“AI is reshaping personal financial planning by changing how people manage their money. Smart algorithms can now provide highly personalized insights that were once available mainly to high-net-worth individuals.”

But is it really that good?

Financial planners know that good personal financial advice requires detailed personal information. Technical expertise is part of the job, but so is understanding human emotions and subtle factors such as health, family, and life experience. A chatbot only knows what you provide, and common sense tells us that once you share information on an open platform, it is no longer fully under your control.

A paper published in the Journal of Financial Planning in June found that GenAI tools varied meaningfully in specificity and consistency.  And there was substantial variation in guidance across platforms.  Portfolio recommendations varied significantly, and many platforms gave differing advice based on gender.   They found more uniform advice related to retirement withdrawal recommendations, likely because so much has been written about the 4% withdrawal rate research.  But financial planners know that the 4% spenddown rate must be tailored based on market conditions, client temperament, longevity, unanticipated expenses and opportunities.  In other words, in the real world of personal financial planning, 4% is rarely recommended year after year in retirement.

And then of course, GenAI can go rogue or worse, hallucinate.   I asked GenAI for a straightforward question about a private foundation’s pension plan and got endless information about the Federal Government’s TSP.  Tried the same with an income tax question and received very authoritative paragraphs about laws that didn’t apply or had been replaced.    

If you’re among the many people turning to GenAI for financial advice, keep these cautions in mind:

• Use GenAI as a quick research tool, not a source of complete advice.
• Remember that the quality of the response depends on the questions you ask.
• Be careful about entering personal financial information.
• Expect that some information may be inaccurate.
• Do not rely on GenAI to replace human judgment, discipline, or long-term thinking.
• Consult a Certified Financial Planner® when your needs go beyond what GenAI can provide.

Karen Schaeffer, CFP® is the Managing Member and Co-founder of Schaeffer Financial LLC, a financial consulting firm in suburban Washington, D.C. She has been advising clients for over thirty-five years and has developed a diverse client base including professional women, Foreign Service Officers, foreign nationals, and Federal government employees. She has been presenting seminars for NITP for over 25 years.

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