Power Up Wealth podcast – Episode 107 – AI and and Financial Planning: Navigating the Future of Financial Planning
James Derrick 0:00
Artificial Intelligence is becoming more sophisticated and powerful. Can it even help you with your money? I’m James Derrick, President of Smedley Financial. Today we will be talking with experts and guests Parker Thompson and Jordan Hadfield.
Shane Thomas 0:18
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
James Derrick 0:34
Thank you for joining me today, Parker.
Parker Thompson 0:36
Appreciate it. Thanks for having me.
James Derrick 0:37
Parker Thompson is a private wealth manager at Smedley Financial Services. He’s got a Certified Financial Planning designation. We’re excited to talk about your article. And with us we also have Jordan Hadfield. Thanks Jordan.
Jordan Hadfield 0:49
I’m excited to be here.
James Derrick 0:50
Jordan Hadfield is also a private wealth manager at Smedley Financial. He is the Vice President of Wealth Management, and he also has a Certified Financial Planning or CFP designation. You two both recently wrote an article about artificial intelligence.
Parker Thompson 1:04
It was a fun one to write. Was it not Parker?
Parker Thompson 1:08
Yeah, that was a good time.
James Derrick 1:08
I mean, it sounds incredibly interesting. I mean, I remember, it wasn’t that long ago when you could ask AI to show you the inside of an apple, and it would just make up some Kaleidoscope picture. And you were like, what in the world is this? Or you could say how many S’s are in the word Mississippi, and it couldn’t count. And to a very large degree, some of these problems are being solved, and it’s getting more and more useful.
Jordan Hadfield 1:30
To witness the exponential growth of AI in real time has been absolutely fascinating and scary at the same time.
James Derrick 1:35
Let’s talk about scary for a second. I mean, do you think AI maybe I’m moving too fast here, but is it going to replace jobs?
Jordan Hadfield 1:42
100%! No question about it.
James Derrick 1:44
Should we be worried about it?
Jordan Hadfield 1:46
No, I don’t think we should be worried about it. Just like when the internet hit. I mean, the internet was a big disruptor, and there were a lot of jobs that, you know, went the way of the dodo bird, but it created a lot of opportunities. Things shift, the market shifted, industry shifted. They absorbed this new technology and they used it for their benefit. I think AI is going to be very similar. I think that it’s going to be a disruptor, and I think it’s also going to create opportunities and possibilities for people. And I’m nervously excited about what the future holds.
James Derrick 2:14
What history tells us about these kinds of disruptions like AI, is that the speed with which they come on to society determines how many jobs they replace. I don’t know if that makes sense, but I mean, think of it like this, like every bridge you build puts somebody who drives a ferry out of business, and so, you know, it was true about the railroad, it was true about electricity, it’s true about the internet, as you mentioned, and it’ll be true about AI, like, it’ll replace jobs, but it’s going to create great opportunity. The question is, can society adapt as fast as the technology is coming?
Jordan Hadfield 2:49
Yeah, and where are those opportunities going to present themselves? A lot of question about that.
James Derrick 2:53
Let’s talk about financial planning and money and investing. Where is AI helpful?
Parker Thompson 2:59
Well, like we’ve experienced that this AI is becoming more and more sophisticated. A lot of the questions that I get from family and friends are, what is it doing in your job, or do you think it’s going to replace your job, or what you do as a profession? I always find that very interesting, because I have to be bluntly honest with them, that yes, AI is replacing jobs. Do I think it’s going to replace our job? The simple answer is no, but let’s let’s get more nuanced in it. What are we using it for in our industry. What are we using AI for that helps us, that aids us? What things do we fear that it might take over? You know what is AI versus the human financial advisor? And that’s a conversation I enjoy having with my family and friends. So I always start out with the initial human element of it, right? There’s so much that a human, a person can sense when, when someone comes into our office and asks advice, versus someone just typing in a prompt, a sentence or two and asking a question on any sort of chat bot or AI technology.
James Derrick 3:53
Yeah, well, I love how you said it’s nuanced, because we tend to think like it’s either AI or it’s the traditional advisor, and that would be true whether it’s we’re talking about accounting or financial advice or doctors or lawyers or whatever. But it really is more nuanced than that, isn’t it? Because you’ve got a third category, which is the advisor who’s using AI. Let’s talk a little bit about how AI is helpful to the advisor.
Jordan Hadfield 4:18
Yeah, AI is definitely helpful to the advisor, but it’s important to understand that financial planning is not an optimization problem. AI is great at optimizing a set of data.
James Derrick 4:29
Explain what you mean.
Jordan Hadfield 4:30
I mean, if I’ve got an Excel spreadsheet right, and I’m looking to categorize it in a certain way, or, let’s say, for example, I’ve got a portfolio and I want to figure out how to allocate it. It can take these data points and it can look back through the internet and all that the internet has provided and come up with a reasonable explanation for how my portfolio should be allocated, how my Excel spreadsheet should be organized. And give me some general information that’s useful. Financial planning is far deeper than that. It is not an optimization problem. A human can weigh many trade offs, incomplete information and conflicting goals and say, this is not an optimization of the portfolio problem, but rather, it is a situation where a client is choosing between multiple goals, a client with different priorities than maybe I have, or the next person has, or the person after that. There’s different situations in his life. He’s got a different risk tolerance. She’s got a different set of skills, set of weaknesses, whatever it may be. Some of these human elements of financial planning are very, very difficult, if not impossible, at this point for AI to understand there’s a lot of emotion involved in financial planning. And again, I’m not talking about optimizing a portfolio. I’m talking about sitting next to a client who just had a spouse pass, and how do we handle that? And what is the risk tolerance? What can this person emotionally handle? From a risk standpoint, it’s not just let’s optimize your portfolio.
James Derrick 6:13
So we’re talking about things that can’t be quantified.
Jordan Hadfield 6:15
Exactly.
James Derrick 6:16
We’re talking about
Parker Thompson 6:17
Some of the intangibles, right, some of the context.
Jordan Hadfield 6:19
Financial Planning is an art form, more than it is just optimizing numbers.
James Derrick 6:25
You mentioned the unexpected. How well does it handle the unexpected? And how do you handle the unexpected as an advisor? And when I say that, I mean, it could be the death of an individual, a spouse, or a divorce, or it could be something unexpected in the world. You know, war breaks out. How do you handle it as a financial advisor, Parker?
Parker Thompson 6:43
I love this question because it gets into the predictive nature of AI, and a lot of people like to speculate in this area. And maybe this is more of a question that I could pose to you, James, because you are the money manager, right? You’re looking at the markets and you’re trading accounts and making sure the money is safe and protected. Do you think that AI is any better at predicting where the economy in the market is going to go versus the tools that you have at your hands?
James Derrick 7:06
That’s a good question. I don’t think that anyone, even a computer, can tell you what the future is going to bring. I mean, it’s just a complete unknown. If AI does a good job, then what it’ll do is it’ll give you a very broad based answer that leaves room for the unexpected, and that would be AI doing a good job, but it would also be less helpful for making a trade. And so you know what we’ll do in the office is we have very specific parameters we’re looking for, and we want to watch for them, and if X occurs, then we’re going to do Y. We’ve been doing it for years and years and years, and we’ve used AI actually to help codify or code these scenarios so that we can be notified if it happens, and so we’re able to use AI without divulging what trades we’re going to make. We’re not sharing any private information, but we’re able to utilize it to be helpful to find triggers that we find are helpful for establishing some type of probability for the future. So we might say, well, we’ve got a 78% chance that something might happen. And that’s not really predicting the future, but it’s giving us a glimpse a possible future, and it helps us know what to do. And I think, I think AI is going to have a really hard time doing that, because there’s so many ideas out there. And when you give it a prompt, if it gives you a very specific answer, I would actually be nervous about that.
Parker Thompson 8:25
I want to bring your response back to the original question, which was okay, on the financial planning side of things, it’s very similar. We understand that AI can give a very general and simplistic, basic answer about something. It’s not near as predictive as everyone touts it to be, in fact, just as much as it cannot predict what’s going to happen tomorrow or the next week or the next year in the markets. It may take a jab at it, but it doesn’t know what’s on the horizon. It’s very similar with financial planning. How can one, how can any of us, even humans, predict what’s going to happen tomorrow? Right? We don’t know if someone’s going to become disabled, divorced, if someone’s going to pass away. We’re not sure what sort of war is going to start across the world. We’re not sure what kind of fear that’s going to instill in the markets, what’s fear that’s going to instill in us or in our loved ones. And so a lot of this is reactive anyways, and AI doesn’t necessarily have if X happens, then Y you should do this. It doesn’t give you those answers. And that’s why the power of a human advisor sometimes can be the best and in most times when there’s emotion involved, always can be someone who can see all the picture. It can be someone who can match up all the puzzle pieces.
James Derrick 9:30
Jordan.
Jordan Hadfield 9:31
Just for fun, I typed into AI here in real time. Went to Chat GPT, and I typed in, can I rely on AI for financial advice, or should I use a human advisor? And it says you can use AI as a helpful tool, but I would not treat it as a standalone substitute for qualified human advisor when real money, taxes or legal consequences are on the line. Generative AI can sound confident while being wrong and make up details if it lacks context, risk management guidance for generative AI emphasizes governance, testing and incident handling precisely because these risks can be novel or amplified with general AI. Financial planning is messy, and if AI doesn’t understand who you are at the deepest level and what your goals are and what your priorities are, how can it generate advice that is tailored to you. It can’t, and again, it takes a human advisor to connect with you on an emotional level, understand who you are, make recommendations for you. Specifically, if we’re making a tax recommendation, we’re taking into account things way outside of taxes. We’re taking into an account your faith. We’re taking into account your estate planning goals. We’re taking into account more than just numbers. It’s not a math problem. Again, financial planning is art, and I take a lot of pride in that, and I’m confident that AI is not going to replace the financial advisor. However, AI is a tool, and I think financial advisors that can successfully incorporate AI into their firms and into their planning will replace the financial advisors that do not use AI.
James Derrick 11:11
I think that is an area we should really dive into. I was talking to a doctor several weeks ago and asked about the use of AI, and he was absolutely using it and loving it. He said, I can meet with more patients, with the help of AI, because it’s it’s helping me to some somewhat with the diagnosis. But I think more of the note taking. I asked my dentist the other day if they’re using it, and the answer was no, but they spent quite a bit of time, you know, putting their hands in my mouth and then going to the keyboard, then hands back in my mouth, then back to the keyboard. And so there was some of that going on. And I think, well, boy, there’s a real opportunity here for some improvement. So let’s talk about you guys.
Parker Thompson 11:47
Yeah, I would say very much similar to, like your was it the dentist? The dentist wasn’t using it, but
James Derrick 11:53
The doctor was.
Parker Thompson 11:54
The doctor was. It’s, it’s a lot of the transactional stuff that we do in our business that is required, it’s regulative, it’s needed and it’s necessary, but it takes a lot of our time. We would love to be in meeting with clients and doing interpersonal connections all the time. That is only a fraction of our time. What takes up most of our time is recording some of the notes and putting those into our system and making sure that all of that is done correctly and concisely, that is where we’re finding that AI can really pick up a lot of the a lot of the legwork there.
Jordan Hadfield 12:17
Absolutely.
Parker Thompson 12:18
Adding back so much of our time. We get to be more present with clients. We get to be more active in their plans.
Jordan Hadfield 12:31
We get more focus, more on the relationship and the emotional side, right?
Parker Thompson 12:35
We’re not stuck with paperwork. The paperwork is becoming faster and more efficient, the legwork, all the notes that is what is AI is taking and shouldering most of.
Jordan Hadfield 12:44
Absolutely agree as far as the onboarding process and the note taking and document analysis and projections at scale, AI is fantastic, but there is something that I really want to stress. I want to highlight this. I want to hit this really hard. As a financial advisor, our first, second, third, fourth and fifth priorities are your privacy and the safety of your information. And even though we are incorporating AI at our firm, and we’re using it in several different ways, we are very, very careful and very strict about how information is used with AI. We never use personal information of our clients. We never use personal information of the firm. We never use account numbers, account balances, that personal information is sacred to us. We are very, very careful about putting that.
James Derrick 13:38
We don’t even put anonymous information out there.
Jordan Hadfield 13:41
None. You know and I can’t stress this enough, because there’s a lot of legitimate fears about AI. We are very, very, very careful about how we use this and protecting our clients, privacy, again, is our utmost priority.
James Derrick 13:56
I totally agree. Now, if somebody’s going to do this on their own, like a little bit of of AI advice. Should they be worried about those same privacy things that Smedley Financial is so careful?
Jordan Hadfield 14:08
Absolutely.
Parker Thompson 14:08
Absolutely.
James Derrick 14:09
So if, let’s say I’m an individual, I’m looking for some advice, and I put my information out on out on the web for an AI, is that public information now.
Parker Thompson 14:15
It’s not necessarily that it’s public information. It can be with some of the resources that you use, but it is now something that that AI can learn from and incorporate in. We’re not sure what’s going to make it through. I think there are sophisticated enough systems that don’t share public information to others, but there’s no guarantee, right? We haven’t been assured of that, but we know that AIs are learning models, so it’s just going to absorb everything it can and learn from it, which means that what you’re part of the study.
James Derrick 14:41
If you’re not paying for the product, you are the product as Shane Thomas likes to say in the office here, and that means that it’s basically taking what I’ve given it, and at any point in time, it can regurgitate that information to anyone.
Jordan Hadfield 14:59
The safe road here is if it’s private information, you do not put it anywhere around Open AI in any way, shape or form. I just think the safety, the safe road is the best road in this case, especially when we’re talking about your finances to this level.
Parker Thompson 15:16
This is one of the hold ups too, for me, is that, how can you gather a full financial plan. How can you fully prompt an AI device or an AI app or software with all the applicable information without giving away some of that personal data, that personal identifiable information? We go over that here in person in the office, and it’s stored securely on our servers and encrypted, and we take all the measures that we can, and we use that data to create our plans. If you’re not giving that to your AI bot when you’re prompting it for a financial plan, how is it supposed to gather a full financial plan? How is it supposed to be perfect end to end, or at least as good as it can be and complete and contextual? If it doesn’t have all that information, that’s kind of that’s one of the things that if we are going to be safe with our data, AI is already at a disadvantage because it can’t see the whole picture.
James Derrick 16:05
Well, said one final thought. What about this idea that you give in the final paragraph? Advisors using AI in the future will replace those who don’t? Could you expound a little bit on that idea?
Jordan Hadfield 16:17
Yeah, I think we will see a contraction in the industry. I think as AI gets better, I think advisors become far more efficient, and I think they can handle more. And I think there’ll be a contraction in the industry. And I think top advisors and top advising firms will really rise to the top, and their benefit to society, the benefit to the clients and their professional advice will continue well into the future, but those advisors who struggle, particularly when it comes to using the tools available to provide the best services to their clients, I think that struggle is just going to increase, and I think they’ll end up being displaced.
Parker Thompson 16:58
I think what you’re going to see is those who don’t use AI will start to fall behind, like Jordan was saying, I think those who are empowered by AI and use it well and use it wisely are going to far exceed the capabilities that financial advisors have had in the past. I will remain true to these two things. Clients will always want technology to be a part of their process, because they know that it can be generally generationally changing and generationally effective. But I also think that people still want that human connection.
James Derrick 17:26
I think that’s right, they’re always going to want that the the tools that are going to be most helpful be those that are built in the so called agents that are are built into the software, you know, so that your your financial planning software, your note taking software, your portfolio software, you know, it’s got some built in capabilities that have been upgraded to incorporate the best technology. And therefore the advisors not put out of business, but the skills are amplified. Time is better spent.
Jordan Hadfield 17:55
If I can give an analogy, as you know, and I’ve talked about on this podcast, I’m a big chess player. I love the game of chess.
James Derrick 18:00
Very good chess player.
Jordan Hadfield 18:01
Thank you. Thank you. I study it, and I have a lot of fun playing it. Well, there are AI bots out there that play chess, and these bots are absolutely amazing. But you take someone like Magnus Carlsen, who is the greatest chess player the world has ever seen. He’s absolutely incredible. He’s amazing. He’ll play these bots, and it’s a different style of play. And you often ask, people often ask, how could someone like Magnus Carlsen that can literally calculate 30, 40, moves ahead? How can AI help him in his game? And the truth of the matter is, he doesn’t need help on every move. If he gets help on three moves in a chess game, he is literally unbeatable, because it’s those three moves that will pivot the game in his direction. It’s not every move, and it’s a lot like that in financial advising, there’s some times that AI can help us a little bit here and a little bit there, and that makes a world of difference. And that’s what we’re trying to provide for our clients. Is a world of difference.
James Derrick 19:06
Thank you, Jordan, thank you Parker. Appreciate your time.
Parker Thompson 19:09
Yeah, thanks for having us.
Jordan Hadfield 19:11
Thank you, James.
Shane Thomas 19:13
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn. The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Osaic Wealth, Inc., member FINRA/SIPC. Investment advisory services offered through Smedley Financial Services, Inc.® Osaic Wealth is separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth.
