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Laurence Jones & Heather He take a look at robo-advisers, and the pros and cons of using AI in investing

Investing / opinion
Laurence Jones & Heather He take a look at robo-advisers, and the pros and cons of using AI in investing
shutterstock. thinkhubstudio/Shutterstock.

By Laurence Jones & Heather He*

Artificial intelligence (AI) is shaking up the way we invest our money. Gone are the days when complex tools were reserved for the wealthy or financial institutions.

AI-powered robo-advisers, such as Betterment and Vanguard in the US, and finance app Revolut in Europe, are now democratising investment. These tools are making professional financial insight and portfolio management available to everyone. But although there are plenty of advantages to using robo-advisers, there are downsides too.

Since the 1990s, AI’s role in this sector was typically confined to algorithmic trading and quantitative strategies. These rely on advanced mathematical models to predict stock market movements and trade at lightning speed, far exceeding the capabilities of human traders.

But that laid the groundwork for more advanced applications. And AI has now evolved to handle data analysis, predict trends and personalise investment strategies. Unlike traditional investment tools, robo-advisers are more accessible, making them ideal for a new generation of investors.

A survey published in 2023 showed that there has been a particular surge in young people using robo-advisers. Some 31% of gen Zs (born after 2000) and 20% of millennials (born between 1980 and 2000) are using robo-advisers.

Another survey from 2022 found that 63% of US consumers were open to using a robo-adviser to manage their investments. In fact, projections indicate that assets managed by robo-advisers will reach US$1.8 trillion (£1.4 trillion) globally in 2024.

This trend reflects not only changing investor preferences but also how the financial industry is adapting to technology.

Tailored advice

AI can tailor investment advice to a person’s preferences. For example, for investors who want to prioritise ethical investing in environmental, social and governance stocks, AI can tailor a strategy without the need to pay for a financial adviser.

AI can analyse news and social media to understand market trends and predict potential movements, offering insights into potential market movements. Portfolios built by robo-advisers may also be more resilient during market downturns, effectively managing risk and protecting investments.

Robo-advisers can offer certain features like reduced investment account minimums and lower fees, which make services more accessible than in the past. Other features such as tax-loss harvesting, a strategy of selling assets at a loss to reduce taxes, and periodic rebalancing, which involves adjusting the proportions of different types of investments, make professional investment advice accessible to a wider audience.

These types of innovations are particularly beneficial for people in underserved communities or with limited financial resources. This has the potential to improve financial literacy through empowering people to make better financial decisions.

AI’s multifaced role

AI’s impact on investment fund management goes way beyond robo-advisers, however. Fund managers are using AI algorithms in a variety of ways.

In terms of data analysis, AI can sift through vast amounts of market data and historical trends to identify ideal assets and adjust portfolios in real time as markets fluctuate. AI is also used to improve risk management by analysing complex data and making sophisticated decisions.

By using AI in this way, traders can react and make faster decisions, which maximises efficiency. Other mundane tasks like compliance monitoring are increasingly automated by AI. This frees fund managers up to focus on more strategic decisions.

A close up of a pair of hands holding a mobile phone with pound coins superimposed onto the foreground.
While AI is democratising investing, that comes with challenges. Loch Earn/Shutterstock.

What are the disadvantages?

One of the biggest concerns regarding AI in this sector is based on how having easy access to advanced investment tools may lead some people to overestimate their abilities and take too many financial risks. The sophisticated algorithms used by robo-investors can be opaque, which makes it difficult for some investors to fully understand the potential risks involved.

Another concern is how the evolution of robo-advisers has outpaced the implementation of laws and regulations. That could expose investors to financial risks and a lack of legal protection. This is an issue yet to be adequately addressed by financial authorities.

Looking ahead, the future of investment probably lies in a hybrid model. Combining the precision and efficiency of AI with the experience and oversight of human investors is vital.

Ensuring that information is accessible and transparent will be crucial for fostering a more informed and responsible investment landscape. By harnessing the power of AI responsibly, we can create a financial future that benefits everyone.The Conversation

*Laurence Jones, Lecturer in Finance, Bangor University and Heather He, Lecturer in Data Science/Analytics, Bangor University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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AI can do incredible amounts of work.  And regularly comes up with something stupid.  

Is randomly stupid something you want to run your investments or give you advice.

It's similar to google, but works so much harder.   Google will span the planet in a micro second, extraordinary.  But you know of the choice of answers it gives you there will near the top one answer so off the planet it's nutbar

As for financial advice - the planet is awash with financial advice thrust at you.  Even in the supposedly "underserved communities" mentioned.


Expect to see the words "not legally or financially liable" a lot in the future. Most AI chat bots, (all AI advisors to date use the same tech as our current crop of chat bots and have little functional enhancement beyond that), have been proven to be erroneous hindrances that report false information to customers and clients. Many companies can be held personally liable for these mistakes unless there are clear and obvious disclaimers users sign up into. Many of these same companies often leave customers no other options when working with a company to not use a chatbot mechanism instead of human contact to fix real issues a company is legally obligated to.

So we do need more laws regulating use of chat bots and options for contact around them that are clear and easy to access for legal requirements of companies to be met. You cannot fire your customer service staff, set up a chat bot and not have an ever growing technical and legal debt, (often costing more then the staff ever did) when the chatbot cannot handle 90% of real life cases or accurately report information to users. Chatbots themselves use inaccessible tech, (the methods of information communication and reporting are inaccessible by design in the apps) that actually does breach US ADA act and UN conventions. Given all of that, from a starting point NZ may face some legal hurdles with AI "advisors" going forwards.

Then there is the bot trading which has several levels of different functional complexity. From your simple rules setup to the same tech exchanges use to beat the system in a house always rules style (that can do media analysis and cause massive market crashes when the AI is flawed in logic and the feedback loops fail). It has never been a day trader wins environment with the exchanges using large scale bots over and beyond the past decade. The advent of bitcoin had rapid increases in AI trading bots widely in the speculative market which are cautionary tales at best.

Again the legal complexities are best summed up with: never be the one caught holding the legal responsibility bag. Don't run the AI yourself to customers. Set up a grey area third party of reduced legal recourse where you are not responsible for AI failures (and they do fail often and frequently so it is necessary to ensure clear liability). Until governments have adequate AI & financial regulations the grey area is the best place for companies (or NZ for that matter where customers have limited rights and access to justice with compensation for damages, & class action when things go wrong).


Couple of thoughts -

1. Poss of interest if through a reputable company not ‘Dave's AI investment parlour’. Key is what undertakings are given then.

2. Verification of anything on the internet required - so would be cross checking with other sources where possible. If they all say something different might as well use a dartboard. 


This article isn't helpful: show us the data.

  • Are robo advisers better than human fund managers at maximising returns?
  • Are they better than the simple index trackers that outperform about 80% of the human-managed funds now? I'm betting not.
  • Do AI systems codify human prejudices and misconceptions - but execute them much faster, particularly the hybrid systems that also factor in often questionable trader judgement?
  • Once AI managers and trading become ubiquitous, is there going to be any net advantage or simply vast amounts of pointless churn as AI systems grapple with each other?
  • How prepared are the trader class to be be displaced by more effective machines - or will they maintain they are vital, even if the returns are poorer with human involvement?

They’d be good at arbitraging Golem, but there are already some pretty powerful programs out there doing that already.


Oh, robot! I had a palpitation for a start when I read “Robbo”. Imagine the most inept finance minister in NZs history giving investment advice. Phew!