Retail investors may soon rely on generative AI tools for financial investment advice

Gen AI is expected to be added to the mix of advice sources starting in 2024 (figure 1). Investors could use both broad-based gen AI applications and gen AI applications tailored for investment advice to help make their decisions. Investment advice through gen AI could be easily accessible to investors in the next few years as financial institutions roll out revamped advice engines powered by gen AI. It is likely that investors will start to expect gen AI-powered investment tools.

Some advice sources may be affected to a greater degree than others. The stickiness of a source for advice could depend on several factors, such as the value of the advice delivered, the ease of its accessibility, and the cost of the advice.

Friends and family will likely hold steady, projected to drop 1% over the next five years and yield little share of mind-space for advice to gen AI. This resiliency may be due to the constant availability of friends and family and, of course, a price point that can’t be beaten. Even though the value of this advice might be objectively low, it isn’t likely to be displaced by gen AI capabilities.

For financial services firms, the high levels of expected change present an opportunity to reshape the online advice landscape. Early gen AI advice engines have an opportunity to capture share of investment advice mind-space. But financial websites that don’t add gen AI capabilities could fall behind. In 2023, 28% of investors used financial websites for advice.⁶ However, this was the case before the rise of generative AI. Deloitte predicts that just 9% of investors will use financial websites that don’t have gen AI capabilities by 2028.⁷ Two factors are expected to drive this change: Investors will likely seek out sites with gen AI capabilities that are able to tailor content to their individual needs, and financial institutions will likely enhance their online advice engines with gen AI capabilities, leaving fewer sites without gen AI. Investors could soon begin to see these capabilities in many of their financial interactions and will likely expect it to continue.

Limited-scope advice is expected to largely be supplanted by gen AI-enabled tools

Gen AI’s impact on financial advisers will likely reshape investment industry distribution strategies. The model used here predicts the percentage of retail investors using advisers will drop from 35% to 31%, even as the number of advice sources is expected to increase by about 20% and advisers themselves will likely be armed with gen AI capabilities. This drop in mind-space may be concentrated among advisers who provide more limited advice, such as Series 6 registered representatives. They can offer mutual funds and variable annuities, but not exchange-traded funds (ETFs) or common stock. Gen AI-enabled applications may be able to compete more favorably against the limited and transactional offerings from Series 6 reps than against the relationship-based comprehensive offerings from more sophisticated financial advisers. Additionally, retail investors are increasingly investing in common stock and ETFs, along with alternative investments, such as private equity, and each of these asset classes are out of the reach of Series 6 reps.⁸ Investment managers with financial adviser-driven distribution strategies are expected to retune their approaches as gen AI-capable applications compete in new ways with financial adviser-based distribution.

Investors sought investment advice through social media as the third-most-cited source with 30% having used it in 2023.⁹ As gen AI technology matures, investment-focused social media channels that lack gen AI augmentation will likely decline. But overall, social media investment guidance could continue to grow by embracing gen AI and showcasing how to use it. For example, some financial firms could begin to build gen AI financial advice applications that support a social media influencer’s user profile with its associated unique features. These influencer-friendly applications may include features such as recording screen navigation video and an integrated video interface so influencers can provide commentary. With capabilities such as these and integrated editing and publishing features, financial institutions may be able to influence the influencers. Financial advice with gen AI tools delivered through social media may emerge as a distribution channel, but this potential gen AI advice variant is currently included in the overall gen AI advice category in this analysis.

Other avenues for advice, such as books and newspapers, are expected to be part of the advice mosaic in a different way. While investors may be less likely to use these sources directly, this content can be integrated into financially focused gen AI applications. Investors may ask gen AI-enabled tools questions like, “Considering my financial situation, risk tolerance, time horizon, and the news about ‘hypothetical security,’ does it make sense for me to continue to hold it at this level?” The responses could be fueled by investment and strategy books, news articles, and personal investment characteristics.

Gen AI-enabled applications will likely become a new leader in advice mind-space to retail investors in just three years. Overall, incumbents in the retail investor advice mind-space should expect to face share risk. The leaders in this future landscape will likely have a strong mix of comprehensive investment solutions, gen AI capabilities that offer specialized investment advice, and the direct and intermediary user profiles accessing those capabilities.