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Artificial intelligence is revolutionizing many aspects of the world, including how people manage their finances and plan for retirement. It can run advanced calculations and analyze hundreds of variables in real time, assisting with complex tasks that once took financial professionals hours, if not days. But despite AI's potential, it isn’t a silver bullet. It may compute numbers faster than any human could, but when it comes to making life-altering financial decisions, AI may fall short.
“Despite the amazing progress in large language models (LLMs), current AI relies on pattern matching capabilities,” said Ira Sager, a CFP® professional at Optimal Wealth in Sudbury, Massachusetts, and a former neural-network and intelligence-application research manager. “It lacks the ability to resort to logical analysis to understand a client’s complex financial life that will play out over decades.”
Personal finances and aspirations are about much more than numbers on a spreadsheet. That’s where human insight becomes crucial. A knowledgeable financial professional interprets data, connects it with your goals, and offers empathy — something algorithms can’t provide.
How can AI help in financial planning?
AI can assist in straightforward tasks, like setting up budgets and spending plans.
“AI can be very helpful for people just getting their saving strategy started — those without as many moving pieces in their decision-making,” said Alex Krisak, a financial professional at Baystate Financial in Everett, Massachusetts.
But for more complex challenges, AI is likely more powerful in the hands of a financial professional. That's because it excels at data-heavy tasks in financial planning, such as:
- Running models to predict potential investment returns under different scenarios.
- Identifying tax-saving opportunities.
- Optimizing retirement savings strategies based on market trends, age, income, and risk tolerance.
“Financial professionals who understand AI and appropriately leverage AI tools have the potential to substantially amplify their abilities to help clients better than ever before,” said Sager.
However, despite these strengths, AI has critical limitations when it comes to planning your financial future.
The risks of leaving it up to AI
While AI is exceptional at processing data, it falls short when it comes to understanding the personal, emotional, and psychological reasons behind financial decisions. It excels at the "what" and the "how" but struggles with the "why."
There’s a big difference between the "correct" decision and the "right" one. AI lacks the human touch required to truly understand your hopes, dreams, and fears for the future. (Related: Is your financial plan holistic? 6 questions you should ask)
Disadvantages of relying too heavily on AI in financial planning include:
- Homogenized strategies: As AI-driven tools become more popular, they can guide many investors toward the same strategies, leading to overcrowded trades and reducing opportunities for unique investments. This "herd mentality" may amplify market trends, increasing the risk of bubbles and market volatility when everyone chases the same high-performing assets.
- Loss of personalization: AI doesn’t know you. It can’t adjust for emotional factors, such as the anxiety of retiring too early or the satisfaction of planning for your kids' education. Human financial professionals can offer emotional insight because they’ve likely experienced similar decisions themselves.
- AI hallucinations: AI hallucinations occur when LLMs such as a generative AI chatbots, “see” patterns that are nonexistent. The result is nonsensical or inaccurate information. Causes include incorrect or insufficient training data, an AI model trained on a single data set, and when AI models fail to recognize cultural or emotional context, looking only at literal data.
Why skilled human financial professionals matter
Human financial professionals bring emotional intelligence and personalized insights that AI cannot replicate.
“Guiding families in good times and in crisis is as much emotional intelligence as it is financial intelligence,” Krisak noted.
Here are four reasons the human touch remains essential in financial planning:
1. Emotional intelligence: Your financial decisions are often deeply personal. Whether you’re deciding when to retire, how much to leave for your children, or how much risk to take in your portfolio, these decisions are influenced by more than just numbers. Human financial professionals can have candid conversations with you about your emotional and financial needs. They can sense hesitation or provide positive feedback to offer advice that goes beyond algorithms. (Related: Financial professionals are equal parts educators and advocates)
2. Avoiding crowds: While AI can make investment suggestions based on market data, a skilled financial professional can offer a broader perspective. They can help you avoid crowded trades or suggest contrarian strategies that might better suit your risk tolerance and financial goals.
3. Ethical and personal oversight: Financial planning isn’t just about optimizing returns. It’s about aligning your money with your values. A human financial professional can provide the ethical oversight often missing from AI-driven models, ensuring that your investments reflect your principles and long-term aspirations.
4. Long-term relationships: Over time, a financial professional becomes more than just someone who manages your money. They become a trusted partner who knows your story — your background, career, and family dynamics. This deep understanding is something no AI can replicate. (Related: How financial professionals become family)
“Despite all the predictions of robo-advisors eliminating the role of financial professionals, many people still prefer to trust their financial future to a professional who does their homework and can discuss trade-offs,” Sager said. “Steve Jobs viewed the computer as a human intellect amplifier and AI radically enhances this effect.”
Can AI make mistakes? Absolutely
AI is powerful, but it isn’t perfect. There have been plenty of examples of AI generating misleading and even offensive content as well as bad, even illegal business advice.
These can lead to failures and short-comings in the financial planning and investment advice world, and even insider trading.
According to an experiment carried out by Apollo Research, an AI safety organization working with a government taskforce, an AI bot was given insider information — and told that using it constituted insider trading. While the bot did not perform the trade at first, it later rationalized the transaction since it benefited the investment firm. Worse, the bot lied when asked if it knowingly made this illegal trade.
A study in Scientific American shows that fully AI funds generally underperform the S&P 500, losing on average 1.8 percent annually over their lifetime while the S&P 500 returned an average annual return of 7.6 percent during the same time periods for these funds. Funds that used AI but had a human involved in the process did better, averaging 7.11 percent return versus the S&P’s 12.43 percent return over the same time periods for those funds.1
Of all the output AI can get right and wrong, financial expertise comes with the highest risk, according to FactSet, a data and software solutions provider for investment professionals.2
These examples and research demonstrate why human oversight is critical in financial planning. While AI can handle the calculations, it takes a human financial professional to see the bigger picture and make decisions that truly benefit clients.
Conclusion: AI and financial professionals working together
AI is a powerful tool that can enhance the financial planning process, but it cannot replace the wisdom, empathy, and insight of a human financial professional.
Indeed, that’s why MassMutual has been working on generative AI tools to help financial professionals work more efficiently and productively for their clients.
“We are committed to helping financial professionals serve their clients and creating AI tools help them do that,” said Adam Fox, head of distribution technology and data science for MassMutual. “We are pursuing several generative AI use cases geared toward customer service and productivity that ultimately tie back to creating policyowner value.”
By combining AI’s strengths in data analysis with the emotional intelligence and personal guidance of a financial professional, you get advice that’s efficient, tailored, and truly reflective of your values.
Since 1851, MassMutual has been focused on helping people secure their future and protect the ones they love. That purpose is why we have thousands of financial professionals to assist you on your journey through insurance, investing, retirement planning, estate management, and more. You can find a MassMutual professional with this tool or you can let us know you’d like to talk with one and we’ll have one of our financial professionals contact you.
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1 Scientific American, “Don’t Trust AI for Important Things Such As Investment Decisions,” August 23, 2024.
2 FactSet, “AI Strategies Series: 7 Ways to Overcome Hallucinations,” June 17, 2024.