AI | Personal Finance: Will AI be your future financial adviser? What role will humans play? Krithika Muthukrishnan answers

“An AI can play a pretty important role in throwing up what are the best funds because that is an algorithmic objective process. I would suggest every investor should work with a trusted partner, someone who can provide the human touch along with a very unbiased approach to investment selection and reviewing that investment. Along with this person, plan your financial goals, understand and accept risk and risk levels and choose the investment strategy. The human touch plus tech and AI is quite an unbeatable combination or it is going to be an unbeatable combination going forward,” says Krithika Muthukrishnan, Chief Data Science Officer, Scripbox.

We have been seeing AI doing a lot of things, be it doing kids’ homework or helping professionals with important number crunching. But will AI be your future financial advisor? So far, what is the kind of financial planning or understanding of financial instruments AI has been offering to people that you have tested and seen?
AI and particularly generative AI, ChatGPT and things like that have really taken the world by storm. It has been in the discussion a lot in the last few months. But one place where AI has been used quite often in financial services is investment selection. For example, we at Scripbox have always believed in an algorithmic evidence based approach to investing and so what does that mean? There are about 40 asset management companies and more than 1,300 individual funds to choose from and the sheer volume of options can be quite overwhelming for investors. Not only that, when selecting a particular type or a specific fund, you need to consider different factors: what is the investment objective, what is the risk profile, what is the investment horizon and so many more other things. Each element plays a crucial role in determining what is the right investment strategy for a particular investor. So, based on data and evidence, we help investors select the best funds for their needs and the AI engine not only helps you shortlist the parameters that are most important, but assigns a weightage and then helps you understand which funds are the best, are your recommended funds, making the entire process quite rule based and objective.

Now, while organisations like ours have been using this for some time, the emergence of AI is great from an investor perspective. What is going to happen is thatthe industry is going to use more such algorithms and AI for fund analysis and investors are going to get better and more objective advice. So, this entire emergence of AI is great for the investor.

I want you to highlight which is the difference between robo advisory and AI suggesting financial instruments and doing your financial planning? Are both the same thing or is there a difference?
There is a difference. I talked about how robo advisory really focuses on helping you select the right investment products and funds, so objectivity is a big benefit of robo advisory.

But can we say robo advisory is AI driven?
I would say it can be AI driven, but more importantly, it is algorithmic driven and it will typically be tech driven. More, you can use AI and more advanced organisations are starting to use AI. AI allows you to do more than robo advisory. It allows you to take it forward to personalisation.

Each individual investor is different. They are in different stages of life. So, an investor in Indore who is 48 years old and who is going to put two kids into college in the next five years has a completely different set of goals, ability and willingness to take risk from someone who is sitting in Bangalore, is just 35 and yet to have kids. So, their needs can be quite different. How do they react to market turmoil or changes in the market? So, the next big thing for AI which is emerging is personalisation.

So, personalise the experience for each investor and basically this is what we call hyper personalisation or recognising the individual needs of each customer and delivering to a segment of one. So, each person will get an individualised investment strategy, what products are right for them and when and what kind of help they need. Now, going back to your question in terms of how this will be delivered, it may be done through an advisor who has these AI recommendations to help him deliver better advice to the customer because a human touch is needed and a combination of these becomes really powerful.

Now an AI will obviously configure everything and give you the best available options, analysing and assessing your risk appetite, long-term goals and the kind of investment instruments you are comfortable with. But if someone wants a recommendation in say largecap category, how do we know what has been suggested is actually accurate?
You have to trust the process. That is the first and foremost thing and over a period of time, your entire AI technology gets better and better in terms of recognising what are the parameters. So, even in terms of when an individual advisor looks at it, he is following some kind of process to select a particular fund. AI just scales up that process and makes that process much more rigorous and much more fact and evidence based and that is the benefit that AI brings.

For example, there may be 100,000 research reports out there. It is literally impossible for one individual advisor or even a bunch of advisors to look at all of that and distill that out into what is meaningful for the investor. AI can help analyse that information, tell you how to rate it and provide you recommendations along with why it is saying that. An advisor can use that to better recommend things to his investor.

In a country where we are talking about financial literacy being the most important aspect of financial planning and helping people participate in the equity markets and the understanding towards financial planning and investment portfolio. do you think having an AI suggesting you all these things will help in financial literacy?
I think we need to take into mind that technology is changing very fast. 15 years ago, the idea of people buying funds and stocks online without an advisor would have been very difficult to understand but as the technology becomes better and better and more suitable for an individual use for a customer use, you will start using it more and more.

But that is not to say that the human adviser does not play a role, the human advisor plays a very important role in helping the investor with what we call emotional management, by helping him understand and making sure that investors do not panic when suddenly the market is low; just making sure that they have a place and a person to go to ask questions and get them answered. It is a combination of human touch plus AI that we would really counter going forward.

What’s important over here is to understand the kind of help you should be taking from an AI when it comes to your financial planning or your investment instruments. Recommendations also, because right now, I tried Googling up a few AIs and trying them out. It gives you a very generic basket of investment instruments. For you to understand what is right for you, you still might need a human financial advisor’s help.
It depends on what stage of investment you are and what kind of investor you are. Since you mentioned you tried different AI and algorithmic tools. I suggest you give Scripbox a try but basically it is more important that investors understand the investment process. They need to have a clear goal. They need to understand what their financial objectives are. So is it about funding a child’s education or planning for retirement and then they need to stay invested. It becomes really disheartening for us, for example, when we see investors who enter at the peak of the market and exit at the lows, so they try to time the market. These are places, for example, where an advisor can play a role.

But in terms of the hard numbers, in terms of being actually able to select which funds, an AI can play a pretty important role in throwing up what are the best funds because that is an algorithmic objective process. I would suggest every investor should work with a trusted partner, someone who can provide the human touch along with a very unbiased approach to investment selection and reviewing that investment.

So along with this person, you can plan your financial goals, you can understand, accept risk and risk levels and choose the investment strategy. The human touch plus tech and AI is quite an unbeatable combination or it is going to be an unbeatable combination going forward.

Is AI helping people avoid becoming the victim of insurance mis-selling also?
I don’t really know if that is happening yet. I do not really think that is yet happening.

Any way to figure out that we are taking the help of a right AI or the right algorithm because there are so many and most of them maybe in the trial mode these days because they are not completely and full-fledgedly launched in India? How do we ensure that the algorithm that we are talking to or taking suggestion recommendations from is actually worth it?
My suggestion is do not go for an algorithm that you have not heard of before. First and foremost, look for trust and do not go just with an algorithm. Go with someone who can help you with the algorithm. If you are an initial investor who is just entering the market, for instance, you can say your needs and goals are a little simpler. You can say I am just using an algorithm to select the funds.

For example, if you ask ChatGPT to give you portfolio recommendations, it typically gives you a list of factors to consider but says go and consult your financial advisor or go and consult someone who knows about what they are talking about. So do not just use any algorithm that is there. Do not try and use ChatGPT itself or any generative AI, it is not yet there but rather go with a trusted advisor or a trusted partner. I think that’s what I would say.