Could AI make you a better investor?

“Isn’t that cheating?” asked Uncle Trevor as I triumphantly identified a willow warbler using an app on my phone on a recent family trip to the Isle of Arran.

He has a point. The artificial intelligence-powered Merlin app has revolutionised the way I bird watch. You hold your phone up, and within seconds, it will pick up and identify the song of pretty much any bird you can hear with staggering accuracy.

It has also changed how I feel about AI. You could call it my “Merlin moment” — the benefits the app has unlocked has made me feel more positive about the other life-enhancing possibilities AI could bring in the future, rather than fearing that the robots are coming for our jobs.

Apple’s landmark deal this week with OpenAI to embed generative artificial intelligence on millions of smartphones underlines how quickly this powerful technology is set to become part of our everyday lives, with possibilities we cannot yet fathom. Never mind birdwatching, in the future we could be asking Siri: “Which stocks should I invest in?”

My FT colleague Robert Armstrong reported on a fascinating AI-driven investment experiment in this Unhedged newsletter this week.

The University of Chicago school of business has been using ChatGPT to analyse the financial statements that US companies make to the stock market; generate future earnings predictions, then use these insights to build an investment portfolio. Preliminary results suggest computers were better at picking market-beating stocks than some human analysts.

The academics behind the study emphasise this technology is at a very early stage, and Rob’s note raises plenty of questions and caveats. But it got me thinking about how AI could be a powerful and affordable source of alpha for retail investors.

Two in five non-advised investors with assets of £250,000 or more say they would be comfortable taking an investment recommendation as a result of using AI technology themselves, according to Boring Money’s Advice Report, released this week. The same number said they would be comfortable using a financial adviser who uses AI technology to offer a better or cheaper service. Considering the trust concerns that most people seem to have about AI technology, I found this quite staggering.

But then I thought about how Merlin has changed my birdwatching habits. Identifying which bird is singing is only the start. If I know there is a willow warbler chirping high up in the canopy — a bird I seldom hear in London — I will spend more time and effort looking for it in my binoculars than I would for, say, a chaffinch.

An estimated 12.4mn UK adults have money to invest but cannot afford to access financial advice. Could AI-powered insights help them bridge this gap?

Over time, I have grown to trust Merlin (earlier bird ID apps were very hit and miss) though I am aware of its limitations. Yet combining its insights with my decades of learned experience has definitely made me a better birder. Similarly, I have no doubt that AI could also make me a better investor.

In the future, AI-driven models might throw up some lesser-known but eye- catching investment ideas worthy of further exploration. Although there are still huge questions about trust, risk and accountability, taking tips from a computer is one way of short-circuiting the emotional biases human investors struggle to overcome.

Holly Mackay, founder of Boring Money, predicts the main barrier to adoption will be trust. “Most consumers still want a human to be involved in the financial decision-making process,” she says, noting the emotional pressures that come with most financial decisions.

However, she also fears that less affluent consumers stand to be priced out of traditional face-to-face advice in the wake of the regulatory focus on St James’s Place and other wealth managers. “As scrutiny of the advice sector increases, risk appetite will diminish, and I think we’ll see the minimum levels for many advice firms rise to over £100,000 of assets per client, which will push the advice gap even higher.”

As things stand, an estimated 12.4mn UK adults have money to invest but cannot afford or do not want traditional financial advice. Could AI-powered insights help them bridge this gap in an affordable and more accessible way?

For starters, AI could nudge us into starting investing at an earlier stage; there are already plenty of Open Banking apps that can use our financial data to prompt better decision making and goal setting.

AI could help us filter investment choices, providing a better way of comparing the fees, make up and performance of similar funds instead of clicking on umpteen key information documents.

It could help us make better investment choices; suggesting an identical index fund to one in our portfolio that costs less; flagging underperforming funds that have failed to beat benchmarks, or making suggestions about asset allocation and how better to balance our portfolios.

Some kind of AI-powered sorting hat that could suggest which investment platform might be the best value for different investors would be a winner in my book.

In a world full of financial jargon, AI has the power to summarise. Given the reams of financial data most people have sitting on their smartphones, it also has the power to model: “Hey Siri, how much more would I need to invest in order to retire early?”

We don’t need to wait for AI to make many of these scenarios a possibility — investment platforms already have the data and the technology to provide more innovative ways of supporting us. What needs to change first is financial regulation.

The Financial Conduct Authority and the Treasury are due to report on an industry-wide consultation into loosening the advice/guidance boundary, which defines what constitutes personal finance advice — a tightly regulated activity — as opposed to general guidance. This has explored adding new categories such as “simplified advice” and “targeted support” which would enable firms to develop mass-market solutions offering more personalised help that stops short of fully fledged advice.

Ultimately, consumers will still be responsible for making their own financial decisions, but the hope is that many more of them will be able to make better informed ones.

Any changes to the boundary will need to be carefully monitored, with huge pressure on firms to demonstrate beneficial consumer outcomes. This is clearly going to come at a cost, making it hard to predict what kind of price point we might see for “advice light” services in future. Used responsibly, AI-powered tools would help consumers gain powerful insights into financial decision making. Yes, there are risks, but it has the potential to make the future much brighter for millions of non-advised investors who are currently fumbling around in the dark.

Claer Barrett is the FT’s consumer editor and author of the FT’s Sort Your Financial Life Out newsletter series; claer.barrett@ft.com; Instagram and TikTok @ClaerB