Investment advisors should not overly rely upon artificial intelligence for financial data interpretations.
Securities and Exchange Commission (SEC) Chairman Gary Gensler recently warned of the current risks artificial intelligence (AI) poses to the financial sector.
“This technology will be the center of future crises, future financial crises,” Chairman Gensler said. “It has to do with this powerful set of economics around scale and networks.”
AI cannot create data, it can only amalgamate data in a way that mimics human design. It also tends to amalgamate data in a similar way when asked the same question repeatedly, unlike the natural variables that come from asking different humans the same question.
If financial advisers rely too greatly upon AI to make decisions, they would make very similar decisions to each other based on the same interpretations of the same data. This over-homogeneity within financial institutions is called “herding,” a phenomenon that precedes many historical financial crashes. Herding does not guarantee a crash, but an overreliance on AI will make herding, and therefore the likelihood of crashing, more frequent.
Not only that, AI cannot decide whether data is good or bad, so relying on it could quickly lead to a high distribution of poor financial advice. “Investment advisers under the law have a fiduciary duty, a duty of care, and a duty of loyalty to their clients,” Chairman Gensler said. “And whether you’re using an algorithm, you have that same duty of care.”
As the Lord Leads, Pray with Us…
- For wisdom for Chairman Gensler as he heads the SEC and raises concerns about AI in the financial sector.
- For members of the SEC as they assess threats to American financial markets.
Sources: NY Times, The Hill
