The rise of Artificial Intelligence (AI) tools like ChatGPT is rapidly transforming retail investing, fueling a massive boom in the robo-advisory market. While AI makes sophisticated analysis accessible to everyone, experts warn that relying solely on chatbots for stock selection remains a high-risk strategy that cannot yet replace human financial advisors.
The Explosive Growth of Robo-Advising
The shift toward AI-driven financial advice is translating into staggering market growth:
The global robo-advisory market (including fintechs, banks, and wealth managers) is projected to reach $470.91 billion in revenues by 2029, up from $61.75 billion last year.
This represents an estimated 600% increase in just five years, driven by tools that allow anyone to select and monitor stocks using algorithm-driven analysis once exclusive to institutional investors.
Retail Investors Embrace AI for Stock Picking
Retail investors are quickly adopting AI for portfolio management:
A global survey by broker eToro found that about half of retail investors are open to using AI tools like ChatGPT or Gemini to pick or adjust their investments.
Currently, 13% of retail investors are already using these chatbots for stock selection.
In the UK, 40% of survey respondents confirmed they have used AI for personal finance advice.
Former UBS analyst Jeremy Leung, who now uses ChatGPT for his multi-asset portfolio, highlighted the cost-saving benefit: "I no longer have the luxury of a Bloomberg... Even the simple ChatGPT tool can do a lot and replicate a lot of the workflows that I used to do."
A High-Risk, High-Reward Strategy
Despite the enthusiasm, experts caution against treating general AI models as "crystal balls." The risks are significant:
Data Limitations: General-purpose AI tools like ChatGPT may miss crucial analyses because they cannot access data behind paywalls.
Accuracy Issues: Dan Moczulski, UK managing director at eToro, warned that general AI models can "misquote figures and dates," rely too heavily on past price action, and often miss nuances in market analysis.
Risk Management: There is concern that investors making money during the current market high may not have the necessary risk management knowledge to handle a future crisis or downturn.
AI’s Potential: Outperforming Top Funds
Despite the risks, the effectiveness of AI-driven stock picking has shown striking results.
In a test, Finder asked ChatGPT in March 2023 to select a basket of 38 stocks based on criteria like low debt and sustained growth. That AI-selected portfolio, which included Nvidia and Amazon, has surged nearly 55% since then. This performance was approximately 19 percentage points higher than the average return of the UK's ten most popular funds.
For those who do use AI, the key is user input. Investors must use detailed prompts, such as "assume you're a short analyst" or "use only credible sources, such as SEC filings," to guide the AI toward a better response.
The bottom line remains that while AI democratizes access to investment analysis, it explicitly warns it should not be relied on for professional financial advice, and investors must exercise caution, especially with markets at high levels.