Pros & cons of tapping ChatGPT for financial advice
By Lorna Tan
If you’ve only got a minute:
- The responses from ChatGPT are based on past data, so they are only as good as the input data that is available to them and how the questions are phrased.
- ChatGPT is not designed to provide financial advice as it is typically generic, limited in the application of local schemes and not comprehensive, but it can support learning.
With the advent of artificial intelligence (AI) engines like ChatGPT, we can enjoy quick access to information, be more productive in research work and certain tasks like preparing presentation slides, writing speeches, essays, coding, and even have philosophical conversations.
Some may wonder about tapping the tool for financial advice or even as a guide for investment decisions. But does it work, and what are the risks?
Before going further, we need to understand how ChatGPT works, what its primary information sources are, and the pros and cons of using it for financial purposes.
How ChatGPT works
In a nutshell, ChatGPT is an AI chatbot that combines its chatbot functionality “Chat”, and "GPT", which stands for Generative Pre-trained Transformer, a model that employs natural language so that the everyday user can use the technology.
Pose a question on ChatGPT and you will receive responses instantly. Do note that as these responses are based on past data, the AI models are only as good as the input data that is available to them.
So, if the data is limited, incomplete, biased, or inaccurate, they will affect the quality of responses. How the questions are being asked is another factor.
For instance, if the context of your query is here but you omit to mention Singapore, then the response would exclude local schemes and you may find the US retirement savings plan 401(k) as a recommended solution instead of the Central Provident Fund (CPF).
As such, I would use ChatGPT as a resource for gathering information, but the content needs to be cross-checked. When required, do seek professional help too.
To find out the pros and cons, here are the financial areas that I experimented on with ChatGPT.
1. Buying a home
Pros: ChatGPT gave several tips towards planning and buying a home. They included creating a budget, setting up an emergency fund, and saving regularly.
It also included tips on exploring CPF “to maximise benefits” (but it failed to explain what they are), understanding home loans and encouraged users to familiarise themselves with government grants to reduce financial burden.
ChatGPT also included a tip on investing to grow wealth over time via stocks, bonds, exchange-traded funds (ETFs) and real estate investment trusts.
Cons: While the tips include a few local schemes, they lack specifics like explaining the steps to optimise relevant CPF schemes, the values of the various housing grants, and how to work the savings harder before they are used for the home purchase.
For example, it failed to advise individuals planning to buy a property in less than 2 years to consider investing in low-risk cash alternatives like Treasury bills (T-bills), money market funds and a high-yield savings account, to earn some interest while saving for the downpayment.
This is because you might miss out on buying your house if you invest too aggressively or if your money is not liquid when you need it.
If your timeframe to buy your home is 5 or more years, investing in a diversified portfolio of stocks and bonds could be an option.
ChatGPT’s response also lacked offering ideas on prioritising key criteria for home selection such as location, amenities, proximity to public transport, age of property and so on, to ensure a realistic budget.
Also missing is advice on the use of smart tools like home affordability calculators/home loan calculators to help you with budgeting.
For instance, the DBS MyHome Planning Tools can help work out a customised property budget, create cashflow timeline and calculate monthly loan repayments.
2. Investment ideas
Pros: ChatGPT suggested several areas such as real estate, technology and innovation, education and skills development, sustainable energy and green technology, ETFs, and unit trusts, and provided basic information about each asset class.
Cons: While ChatGPT included a reminder that investment decisions depend on factors such as risk tolerance, goals, and time horizon, it neglected to add the things to take note of before investing, like having adequate emergency savings and having a positive cashflow.
It also failed to highlight the benefits of time in the market instead of timing the market. Young adults particularly have the advantage of time on their side so they should empower themselves to embark on investing early to reap the benefits of compounding.
Furthermore, there was no mention of the investing avenues like the use of digital tools, regular savings plans, robo-advisory platforms and different approaches like barbell, core-satellite, value and growth strategies.
Pros: ChatGPT was able to provide a basic guide to understanding cryptocurrency, blockchain and named the main cryptos as Bitcoin and altcoins (Ethereum, Ripple, Litecoin).
It gave basic information on storing cryptocurrencies in digital wallets, buying cryptocurrency, highlighted basic security measures, explained long-term trading versus trading of cryptos and encouraged users to stay up to date with crypto news and to diversify their crypto portfolio to reduce risk.
Read more: Beginner’s guide to cryptocurrency
Cons: ChatGPT failed to point out that cryptocurrencies are not regulated by the Monetary Authority of Singapore as they are not legal tender. This means that there will not be any legislative protection should anyone lose money from dealing with digital tokens.
It neglected to provide information on how Bitcoin prices have been volatile and advise that investors should not be investing in cryptos if they need the money in the short term.
For more holistic advice, investors should focus on their core investment portfolio using traditional asset classes like equities and bonds. They should only invest in alternative investments like cryptos only if they still have spare cash and understand the risks.
It also did not give sufficient explanation on what is needed to set up an account on a crypto exchange in Singapore, and the factors (financial standing, account segregation, secure storage) to consider.
For example, DBS uses 100% air-gapped cold storage technology which reduces the risk of loss of cryptocurrencies to hacks, and stores all crypto holdings in segregated accounts, which helps to ringfence the holdings should the exchange becomes insolvent.
Read more: Storing cryptocurrency safely
Using AI tools for financial advice
In short, one thing to note is that ChatGPT’s financial advice is typically generic, limited in the application of local schemes and not comprehensive.
When it comes to financial planning, there is no “one size fits all” solution and cookie cutter advice are not applicable to everyone.
This is because we have our own financial situation, life goals, and risk profile. A pitfall of being solely reliant on ChatGPT is its inability to offer customised or personalised financial advice.
Financial experts are of the view that an AI tool like ChatGPT is not designed to provide financial advice but it can certainly support learning.
Furthermore, the human element is extremely important in the financial services industry. ChatGPT cannot replace professional financial advisors who can do a proper fact find, ask the right questions, and recommend suitable solutions aligned to one’s circumstances and risk profile.
Having said that, the financial services industry is at the forefront of technology and banks like DBS have seized the opportunity for the traditional way of seeking advice (through qualified financial advisors) and AI to work together to meet the needs of consumers.
The application of AI has helped financial advisory service providers to be more efficient throughout the value chain from advisory to portfolio building, tracking, and execution for consumers. For example, the financial planning tool in DBS’ digibank can offer tailored advice that is aligned with the individual behaviour.
Broadly speaking, AI can be viewed as a tool that helps both consumers and financial advisors to better identify hidden money or investment gaps.
But until its functionality, accuracy and depth improve, using ChatGPT can be beneficial, but it should not be an end all.
Ready to start?
Speak to the Wealth Planning Manager today for a financial health check and how you can better plan your finances.
Alternatively, check out NAV Planner to analyse your real-time financial health. The best part is, it’s fuss-free – we automatically work out your money flows and provide money tips.
Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.