Generative artificial intelligence has proven itself as the industry disruptor that keeps on giving. The shake-up it’s driving in the wealth management sector is one of the latest cases in point.

On one hand, data shows chatbots like OpenAI’s ChatGPT and Anthropic’s Claude are taking the role of financial adviser for many.

Soaring in popularity over the last three years or more, the tools serve as a personalized agent for help with everyday to-dos, from drafting grocery lists to planning trip itineraries. As users gain familiarity and trust in chatbots, a growing share are tasking them with higher-stake assignments – like money management. 

Two-thirds of Americans who’ve used generative AI tools reported using them for financial planning, according to an August survey of about 1,000 adults conducted by Intuit Credit Karma. Among Gen Z and millennials, that figure stood at more than four-fifths.

Most respondents prompted GenAI about financial goal setting, budgeting, optimizing savings, retirement planning and investing in the stock market. Many were drawn to the tools as an accessible, judgement-free alternative to working with a finance professional, the survey found. 

But even wealthy Angelenos with a human money adviser on hand are turning to chatbots to inform their financial decisions. A handful of Los Angeles-area wealth management professionals say GenAI is filtering into their meetings with high-net-worth individuals. 

Jeff Sarti, chief executive at Calabasas-based Morton Wealth, has noticed clients have started bringing AI-generated suggestions up for discussion.

While chatbots rely heavily on the depth and quality of the inputs they’re given, in Sarti’s experience, the advice these tools offer tends toward “cookie-cutter” solutions and near-sighted planning.

“I do think it is a concerning trend because it reinforces a lot of what I think is wrong with our industry at large: typically, with investments, there’s a lot of reinforcement of short-term thinking,” Sarti said. “All of that, I think, is very detrimental to sound long-term investment principles.”

To counter the faults he sees in chatbots’ advice, Sarti said his sessions often involve coaching and educating clients back into strategies that look past the hottest stocks or quarterly forecasts.

A similar shortcoming that’s become clear to Greg Wells, a financial adviser and partner at Torrance-based EP Wealth, is GenAI’s recency bias. Users have noticed the tools sometimes overvalue recent headlines and trends in their responses at the expense of earlier, more relevant information.

That tendency can skew the financial advice chatbots spit out if prompts aren’t strategically written to avoid the bias, Wells said.

“If you’re just including the last three years when the markets are very good, it may perform differently than if you tell it to go back to 1929,” he said.

While misuse and overreliance can lead to regrettable financial decisions – like those made by the 52% of Intuit’s survey respondents who said AI-generated advice led them astray – client use of GenAI can also be a positive force, Wells said. 

“I think people in general are getting better advice from these chatbots than they used to get from Google,” he said. “It wasn’t uncommon to have a client say, ‘Hey, I Googled a backdoor Roth IRA, and I think it’s something I want to do,’ and I think the chatbots are taking it a step further, (saying) here’s how you do it and when it makes sense.”

When clients use platforms like ChatGPT to generate ideas or proof an adviser-developed financial plan, Wells said they come prepared with questions that can lead to more productive, substantive conversations.

Growing adviser-side AI tools

While prospective investors and savers take advantage of GenAI, so do the financial advisers sitting across from them. 

As Ayal Shmilovich, a managing partner at Santa Monica-based Gerber Kawasaki Wealth and Investment Management, joined the Zoom interview for this story, along came his AI note-taker.

“That’s fitting, isn’t it?” he quipped.

Last June, a survey by ISS Market Intelligence found 56% of registered investment advisers (RIAs) were using GenAI and large language models (LLMs), largely to reduce administrative burden.

That figure came in three months before one of the advising industry’s leading AI agents even hit the market. In September, Culver City-based fintech company Altruist launched Hazel – the tool Shmilovich used to record, transcribe and summarize our meeting – with aims to create an AI-powered one-stop-shop for wealth management professionals.

Starting out as a custodian platform safekeeping financial advisers’ and investors’ assets, Altruist has signed on more than a thousand new subscribers monthly since Hazel’s debut. The company’s chief executive, Jason Wenk, says that’s just the start.

“We’ll launch a new agent every quarter this year, and by the end of this year, the majority of the advisers’ tech stack will be irrelevant – they won’t need to use it anymore,” Wenk said earlier this month at an AI-focused conference for the advising industry.

Its latest add-on, Tax Mode, led to a major sell-off of Charles Schwab Corp., LPL Financial Holdings Inc. and Raymond James Financial Inc. stocks. Shareholders were spooked by Altruist’s range of capabilities at a cost-cutting monthly price of $60 per user. 

It was a moment that Hitesh Dundi, Vanguard Group Inc. product leader for AI, machine learning and data, dubbed a “bloodless coup against legacy custodians.”

Public wealth management equities collectively lost $130 billion in market value in the days following Altruist’s tax planning agent’s February release. The company is gearing up to launch its next offering, a comprehensive financial planning agent, soon.

Friend or foe?

As agentic capabilities like Altruist’s pick-up speed, and the financial advisory industry quakes from GenAI’s impact, advisers are re-thinking and refining their value proposition.

Uptake of chatbot use for financial advice is expected to grow rapidly in the short-term, with the Deloitte Center for Financial Services predicting that AI investment tools will become the primary source of information for retail investors by 2027. 

That might ring alarm bells for some analysts watching advising. However, as a knowledge industry, wealth management is no stranger to threats of technology-driven obsolescence and replacement. 

Since joining Gerber Kawasaki in 2010, Shmilovich said he has regularly heard warnings that human advisers would soon lose their gigs.

“First, it was Vanguard (automated investment service), then it was the robo-advisers, then it was Robinhood, and now it’s AI,” Shmilovich said. 

Self-guided online tools might suit users when they first dip their toes in financial planning, until they reach a certain asset milestone when more hands-on help makes sense, he said.

As new tools shift the landscape, Shmilovich said his colleagues increasingly see themselves as “financial therapists” – not only constructing investment portfolios and savings plans but also managing clients’ emotions around money. 

“The world is fraught with uncertainty these days, and so we provide something that we don’t think AI will ever replace, which is having a true human interaction with empathy,” he said.

Behavioral finance with a personal touch has long been advisers’ calling card, one that investment apps haven’t been able to supplant.

GenAI might be a different beast, as chatbots advance quickly in their ability to engage on an emotional level. Some ChatGPT users have made pocket therapists out of the chatbot, while others have formed romantic relationships with AI partners. 

Despite the technology’s strides in identity formation and judgement, Altruist Chief Operating Officer Mazi Bahadori said he doesn’t see a world in which AI eliminates the need for a real-life adviser. 

“At the end of the day, there are a lot of people that recognize, ‘Well, this is ChatGPT. I want an actual human being,’” he said. 

The firms that will struggle, Bahadori said, are those that fail to keep up with the AI advancements helping others “eliminate friction” and compete with reduced custodian expenses and improved efficiency.

“One of the most exciting things about Hazel is that it’s lowering the barrier to entry for running a profitable advisory practice,” he said.

Not calling the shots

Recognizing the need to stay abreast of technological developments, Gerber Kawasaki put Shmilovich in charge of the firm’s AI upgrades. 

Alongside its recent adoption of Hazel’s agents, the Santa Monica advisory firm uses LLMs to inform investment decisions. The firm’s advisers ask Claude to research everything from stock trends to company valuations. 

They also use it as a sounding board for their ideas – but “the decision-making processes, be it investments or planning or taxes, always go to the human level before they hit the client,” Shmilovich said. 

EP Wealth runs on the same philosophy, Wells said. At the Torrance firm, AI takes notes, writes to-do lists of post-meeting action items and helps with data entry, but “most of us are still hesitant to give away decision-making to it,” the adviser said. 

“We’re talking about your financial life – it’s a big deal,” Wells said. “At least as of today, these things, they still seem to make mistakes and mess up as they’re learning and growing.”