Rise of the robots: How AI has infiltrated much of your financial life — and what to watch out for

Robo-advisers. Credit monitoring. Fraud detection.

You may not realize it, but AI-powered services are already well-embedded in your personal finance life.

But just how reliable are they, and what are their dangers?Robo-advisers. Credit monitoring. Fraud detection.

You may not realize it, but AI-powered services are already well-embedded in your personal finance life.

But just how reliable are they, and what are their dangers?

The great news is, they’re largely inexpensive and sometimes free — for a limited time, natch.

To harness their incredible computing power, however, you’ll need to become familiar with them.

Here are five areas of personal finance being taken over by the rise of the bots, and what you can expect:

Rise of the robo-advisers

Robo-advisory firms offer AI-powered investment management platforms that provide automated, algorithm-driven portfolio management.

Two examples, Wealthsimple and Questwealth Portfolios run by Questrade, use robo-advisers to leverage low-cost ETFs to build suitable portfolios for all investors.

Most use AI to analyze your financial goals, risk tolerance, and market conditions to offer an investment portfolio that matches your needs.

The apps are intuitive and investors are able to monitor performance, contributions, and the back-end tech rebalances the portfolio automatically.

For investors tired of paying high fees, are getting started or simply don’t want to do much work, this could be is a great solution.

Credit monitoring services

Apps like Credit Karma and Experian use AI to provide free credit score monitoring, analyze factors influencing your score, and suggest personalized tips to improve it.

These techs give you visibility into how healthy your score is, but it’s up to you to change your bad habits.

Fraud detection services

Most banks and financial institutions now offer these services in a bid to detect fraud sooner.

AI systems continuously monitor your financial activity for unusual transactions, which might feel like ‘Big Brother,’ but the helpful part is they can alert you to potential threats or tell you to proactively change passwords.

This can be especially helpful during tax season when fraud is at its highest.

Remember, your financial institution will never ask you to share personal information over an email or text. They will always have you go to their website, securely login through two-factor authentication (2FA) to ensure your accounts stay secure.

Budgeting and personal finance

Apps like YNAB (You Need a Budget), Monarch and PocketGuard Canada use AI to analyze your spending habits and suggest ways to save.

They categorize expenses, identify patterns, and even provide real-time advice on how to stay within budget.

These apps won’t fix overspending habits, but they can provide valuable insights into your spending history, and offer tips to stay on track.

Financial planning platforms

These apps and platforms are popping up all over that offer a hybrid AI-human planning experience.

Their AI can track your net worth, project retirement goals and associated income, and assess your overall financial health.

They will get you started in the planning process, for little money. A simple prompt into your favourite free AI tool can begin offering some financial planning insights, too.

Like, “I’m 41 years old and have $250,000 saved for retirement. Build me a retirement plan.”

Use the outputs as a launching pad for further exploration.

You can even ask ChatGPT to make you an audio narrative of the ideal day in the life of your retirement, which can assist with envisioning how you’d like to spend your golden years.

General risks when using AI for financial planning

The biggest problem with AI is that it lacks emotional intelligence and won’t understand your personal values and feelings about money.

While it can optimize investments, or suggest a better way to budget, it won’t consider your fears, goals, or long-term desires the way a human adviser would.

With many Canadians feeling anxious about the economy right now, it’s important not to detach yourself from the human touch when dealing with financial goals.

That can be difficult as so much of today’s financial planning tech relies on general data models, rather than understanding the nuances of your specific situation.

As an example, an intuitive, human financial planner or money coach, might suggest exiting the workforce sooner to ensure your mental well-being.

It might not be best for your financial goals, but it might be the right move to consider for your overall health — a recommendation no algorithm could ever figure out.

And, while AI can process vast amounts of data, it’s not foolproof.

Market conditions, and politics, can shift unexpectedly (as we are well aware of these days), and algorithms may not account for unpredictable events.

Human insights from thought leaders, journalists and financial advisers can help prevent poor financial decisions.

Also, because the tools take in so much data, you’ll also want to be cautious that whatever you’re using has strong security measures in place and a clear privacy policy.

The last caution I’ll throw in the mix is that free AI financial tools might not really be free.

These companies have bills to pay and prioritize upselling, collecting commissions, or selling user data.

Just like you should ask a human adviser how they get paid, you’ll want to understand how the platform makes money.

AI’s role in financial planning will only continue to grow and this incredible technology can and should empower you.

But it should never replace your judgment.

Use it for some money management where helpful, but maintain that human touch.

Because you’re not a robot.

This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.