Artificial intelligence (AI) has made tremendous advancements in recent years. This progress became not just recognisable to the general public, but also testable in late 2022 with the rollout of the ChatGPT chatbot. Be it for summarising books and texts, as a source of inspiration and a brainstorming aid, for artistic/creative input, or even simply for amusement, generative language models can already help us today in our work and can provide fun entertainment.

Self-confidence at a click
In any case, AI certainly doesn’t lack self-confidence, not even when it comes to crafting the right wording. This is demonstrated impressively when the chatbot is asked how Donald Trump would explain Bitcoin – you can hardly get the voice of the former US president out of your head afterwards. But are ChatGPT (from the US-based artificial intelligence research firm OpenAI) or its numerous kin also suitable to act as investment advisors? Our virtual mystery shopping tour revealed that chatbots still lack necessary financial education. Moreover, even more powerful generative language model versions in the future will not be capable of replacing intimate conversations between clients and advisors.

Advisor without a pocket calculator
When we enter OpenAI’s virtual office and ask our first question regarding a suitable investment strategy, the chatbot starts out by alerting us that it is not a certified investment consultant and cannot give specific investment recommendations.

While AI is becoming increasingly sophisticated, it still has limitations

But as is the case with so many other subjects, ChatGPT quickly sheds its restraint when we chat about a hypothetical example. Our query asks ChatGPT to construct for an investor with a moderate risk appetite a multi-asset portfolio composed of 15 to 20 ETFs that outperforms a simple 50/50 portfolio of stocks and bonds over the long term. Within seconds, the advisory bot recommends a mix of low-correlated asset classes. Stocks, bonds, commodities, and alternative assets are just the ticket, the bot says, and it names corresponding ETFs.

After a few more follow-up questions, we end up with a portfolio of 25 ETFs that also incorporates small and mid-caps, sector-based, factor-based, and thematic strategies as well as exposure to international markets alongside the US in its equity component. The original portfolio also becomes broader and more diversified in its fixed-income component and in its allocation to alternative assets in the course of the ‘client advisory conversation.’ However, the electronic advisor seems a little overwhelmed by a sophisticated client like ourself.

Falling short of the benchmark
After ChatGPT recalculated the weights for us, we could now subject the portfolio to a test or, more specifically, to a backtest (see Fig 1). However, the backtest only stretches back to 2017 due to the relatively young theme ETFs in the portfolio. But that’s good enough for an interim appraisal. Over the first six years up until the world equity market’s peak in late 2022, the ChatGPT basket gained more than 60 percent and outperformed the 50/50 portfolio by up to five percentage points. But since the end of 2022, the much better-diversified portfolio of ETFs has fallen behind the simple benchmark. The chatbot thus shares the anguish of so many other investors who have difficulty beating the performance of a simple mix of stocks and bonds in the long run. Two other metrics also disillusion the client: the equity beta and the volatility of the portfolio recommended by the chatbot are both higher than they are for the 50/50 portfolio. This means that the asset mix does not quite fit our risk profile (yet).

Personalised is different
A number of additional question marks pop up for the client in other regards as well. Is the recommended portfolio really tailored to us? ChatGPT seems to be proceeding on the assumption that we regularly trade on US securities exchanges with the focus on US-based ETFs. After we inform the electronic advisor that our domicile is in Europe, it promptly proposes a comparable palette of ‘European’ ETFs that completely excludes the US. A similar scene plays out when we express our desire for a sustainable strategy, which prompts the chatbot to quickly generate a list of ETFs bearing ‘ESG’ in their names. But serious concerns about the quality of the advice arise at the latest when we look at the original portfolio recommendation’s costs, finding that far cheaper alternatives exist. Moreover, the almost single-minded focus on only two fund providers raises doubts about ChatGPT’s independence. The chatbot must be given credit, however, for having pointed out its lack of training as a consultant right from the start.

Refreshingly self-critical
The conversation ends with the consolation that the advisor at least is refreshingly self-critical.

When asked if artificial intelligence poses an existential threat to professional asset managers, the chatbot replies: “Artificial intelligence has the potential to disrupt many industries, including the financial industry. However, it is unlikely that AI will present an existential threat to professional money managers. Here are a few reasons why:

“AI is a tool, not a replacement: AI is a powerful tool that can assist professional money managers in making investment decisions. However, it cannot replace the human expertise, experience, and judgment that professional money managers bring to the table. Professional money managers have a deep understanding of the markets, the economy, and the companies they invest in. They can use AI to enhance their decision-making process, but they will always be needed to interpret the data and make final investment decisions.

“AI has limitations: While AI is becoming increasingly sophisticated, it still has limitations. AI can only analyse data that has been inputted into it, and it cannot predict unforeseeable events that can impact markets. Professional money managers can use their judgment to navigate these unpredictable events and adjust their investment strategies accordingly.

“Human touch is still valued: Many investors prefer to work with professional money managers because they value the human touch. Investors want to work with someone who understands their individual needs and goals and can provide personalised investment advice. While AI can provide data-driven insights, it cannot provide the personalised attention that many investors seek.

“In summary, while AI will continue to play an important role in the financial industry, it is unlikely to present an existential threat to professional money managers. Professional money managers can use AI as a tool to enhance their decision-making process, but they will always be needed to provide the human expertise and judgment that AI cannot replace.”

We have little to add to the bot’s assessment. As things currently stand, an investment advisory meeting in cyberspace cannot replace a dialogue with a private banker in any way whatsoever. Whoever puts trust in the inadequately educated chatbot will most likely end up with an impersonal standard strategy or in the worst case an incredibly risky investment recommendation. Even more powerful generative language model versions in the future will not be capable of replacing intimate conversations between clients and advisors. And you also don’t get a good cup of coffee in a virtual conference room.

Your personal advisor awaits
Founded in 1977 in the Liechtenstein capital of Vaduz, award-winning and family-owned Kaiser Partner Privatbank AG has decades of experience in investment strategy and asset management. Wealth, however, is made up of more than just the liquid means held in your investment portfolio or at your bank. It also includes business assets, real estate, jewellery and collectibles. Holistic asset and wealth planning or advisory require a more comprehensive approach that gathers a number of different experts around the table.

To realise this approach for wealthy individuals and their families in an efficient way, our partner organisation Kaiser Partner Wealth Advisors has introduced the ‘Wealth Table.’ Together with other partners, Kaiser Partner Privatbank AG participates as an independent expert. All these wealth partners, therefore, follow the same goals and interests when answering questions around your wealth to offer you advice – personally and tailored to your individual needs.