In recent years, AI has rapidly transitioned from the realm of cutting-edge research labs and science fiction into an integral part of our daily lives.

Once the subject of futuristic speculation, it’s now a part of how we work, live, create, and increasingly, how we manage our money.

AI-powered tools and chatbots are now being used to help with everything from budgeting to investment recommendations.

But while this could be useful for certain everyday tasks, it’s important to remember that financial planning is personal and complex, and there are several risks to consider before you rely on a chatbot to guide you towards your goals.

Read on to find out about the rise in using AI for financial planning and what the risks are.

Significant numbers of people use AI for financial planning, particularly the younger generations

A recent survey by Experian found that a significant number of people already use AI for financial planning.

The study revealed that 33% of adults use generative AI to learn about a new topic related to personal finance, and 47% either use it or consider using it to help manage their personal finances.

Among younger generations, the numbers are considerably higher, with 67% of Generation Z and 62% of millennials either using or open to using AI to manage their finances.

5 risks to consider before using AI for financial planning

So, with AI tools increasingly used for personal finance purposes, here are five risks to be aware of.

1. AI can’t take a holistic approach

A strong financial plan depends on more than just numbers, it requires a deep understanding of your life, values, and goals. A human financial planner will take time to get to know your full situation, ask follow-up questions, and adapt advice to fit your circumstances.

AI, on the other hand, works from the data you provide, and only that data. It doesn’t know about the goals you haven’t thought to mention or the life events you haven’t anticipated. Its advice is based on templates, rather than the unique context of your life.

As such, AI lacks personalisation and can’t take a holistic approach that considers your life as a whole rather than as a series of data sets.

2. AI is not accountable to financial regulations

Generative AI is still a relatively new technology, and regulatory frameworks around it remain limited, both within the broader field of AI and especially when it comes to its use in financial planning.

When you work with a regulated financial professional, you have certain protections. In the UK, advisers must be authorised by the Financial Conduct Authority (FCA), and clients may be eligible for compensation if something goes wrong.

AI platforms don’t offer this kind of safety net. If an automated tool provides poor guidance and you suffer a financial loss, there’s no governing body to turn to and no legal framework to hold it accountable.

3. Your data may not be secure

To get useful, meaningful advice from AI, you often have to share sensitive financial details, but not all platforms are built with strong privacy and data protection standards.

This can leave you exposed to privacy breaches, misuse of your data, or even hacking if the system is poorly secured.

While financial planners can’t promise complete security either, they are bound by strict data protection laws and overseen by industry regulators who can take action in the event of a breach.

AI platforms may not be held to the same standards and often offer no such protections or accountability.

4. AI makes mistakes more often than you might think

AI tools are impressive, but they aren’t perfect, and errors in responses, outdated information, and glitches still occur.

For example, Chatbase reports that older versions of ChatGPT had between a 50% and 80% accuracy rate, and the latest version has reached 88.7%. While this is a marked improvement, an 11.3% inaccuracy rate could prove costly if you used it to help you make an important decision regarding your finances.

Of course, humans can make mistakes too, but when working with a financial planner, there’s a second set of eyes to spot errors, not just blindly trust the information. And if something does go wrong, you have the backing of regulatory bodies that offer protection and avenues for recourse.

5. AI lacks “EI”

For all its impressive capabilities, AI still lacks one key trait: emotional intelligence.

Financial decisions often come with emotion. Whether you’re going through a divorce, navigating a career change, or trying to stay calm during a market downturn, emotional support can be just as important as technical advice.

A good financial planner can help you stay focused during stressful times, offer encouragement, and bring a sense of perspective when you need it most. AI simply isn’t built for this. It can calculate, but it can’t connect.

Get in touch

AI is valuable and has no doubt already changed the world and will continue to do so in the coming years, but when it comes to building a strategy for your financial future, the human element still matters.

So, to speak to a financial planner, get in touch.

Email info@blueskyifas.co.uk or call us on 01189 876655.

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.

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. Past performance is not a reliable indicator of future performance.