Could GenAI change the financial advice game?

Generative AI is poised to reshape the landscape of financial advice for retail investors, with more GenAI tools emerging as a prominent source of advice, according to a new report from Deloitte.

The Deloitte Center for Financial Services projects that GenAI-enabled applications will expand dramatically from their current nascent stage to 78 percent usage by 2028. The technology is expected to become the leading source of investment advice by 2027, driven by the accessibility and capability of GenAI tools online.

As financial firms integrate GenAI capabilities, they are expected to offer more sophisticated and personalized investment advice, potentially attracting new players with strong technical backgrounds to the financial advisory market. Over the next few years, the report anticipates a likely increase in generative AI adoption across investment summaries, risk management tools, and tailored guidance for investors.

According to Deloitte, nearly half of investors (47 percent) sought financial advice from friends and family in 2023, making them the top source of financial advice. Financial advisors were consulted by 35 percent of investors, while 28 percent turned to financial websites. The average investor relied on 2.1 sources for their financial decisions.

As GenAI becomes more prevalent, it is expected to become part of this mix, offering broad-based and specialized applications to assist investors.

While 28 percent of investors currently use financial websites that aren’t GenAI-capable, Deloitte expects that to collapse to 9 percent by 2028 as investors favor websites with GenAI capabilities that can tailor content to their individual needs. The likelihood of financial institutions boosting their online advice platforms with generative AI should add fuel to the fire, Deloitte says.

The report suggests that while friends and family will remain a mainstay advice source, dropping only one percent over the next five years, other sources will see more drastic changes.

Financial advisors are expected to cede advice market share, from 35 percent to 31 percent, particularly those who offer limited and transactional advice rather than comprehensive, relationship-based guidance. Series 6 representatives who deal with mutual funds and variable annuities, but not ETFs, alternative investments or common stock, face a greater threat of competition from GenAI-enabled applications, Deloitte said.

GenAI is also expected to make inroads into social media. In 2023, 30 percent of investors used social media for financial advice. As GenAI technology matures, investment-focused social media channels that do not incorporate AI are likely to decline, and firms with GenAI tools delivered through social media could emerge as a new distribution channel for advice.

The report also highlights that traditional sources of advice, such as books and newspapers, will continue to play a role but in an integrated manner. GenAI tools might leverage content from these sources to provide personalized investment advice based on users’ financial situations and preferences.