AI Financial Advice: Study Reveals Users Lack Skills to Benefit

A recent study by researchers at Stanford and MIT Sloan suggests that the democratisation of financial advice via AI is currently an illusion. While professional advice now costs an LLM subscription, being AI-experienced and able to ask better financial questions achieves materially better outcomes. The study, titled "AI Financial Advice: Supply, Demand, and Life Cycle Implications," sampled 1000 US adults and found that the quality of AI-assisted financial outcomes is heavily dictated by a user's existing characteristics.

Commenting on the research via LinkedIn, Viktor Prokopenya, founder of Capital.com, said: "We removed the price. The question is now the gate, and a question is made of words a person either has or does not have." This highlights a growing concern: roughly half of adults in the UK and US have consulted an AI for financial advice, surpassing those who seek human experts. However, unlike robo-advisors, LLMs are not fine-tuned to provide financial advice, which can be problematic given the widespread adoption.

The study revealed that novices are not the ones who benefit most. Instead, users with experience in prompt engineering receive advice leading to an average wealth of $100,000 more by age 60 compared to those who never used such tools. Financial literacy also played a defining role: those struggling with basic concepts received advice resulting in 4.1% lower wealth outcomes. Rather than acting as a great equaliser, the AI appears to mirror the user's own limitations, often providing generic or overly cautious answers to thin questions, leading to lower equity allocations and missed long-term growth.

Industry players like Robinhood and eToro have already deployed AI-assisted tools (Cortex and Tori respectively), aiming to bring research prowess to users. But this study suggests that without adequate financial education, these tools may not level the playing field. For retail forex and CFD traders, the takeaway is caution: relying on AI for advice without understanding basic financial concepts could be risky. The findings underscore the need for traders to invest in their own financial literacy to truly benefit from AI.

This is information, not investment advice.