Young investors putting trust in AI despite misunderstandings

The majority of younger investors trust artificial intelligence (AI) to help them with investing, although many misunderstand the regulatory safeguards that are in place when using the technology, the Financial Conduct Authority (FCA) has found.

Its research showed that 56 per cent of 18 to 40 year olds who own or are considering an investment trust AI tools, more than TV and radio (47 per cent), the press (46 per cent), or social media influencers (29 per cent).

Four in five ‘less experienced’ investors have used AI for help with investing, with two thirds expecting to lean on the technology even more over the next 12 months.

However, FCA’s study showed that younger investors misunderstood the level of protection available when using AI to support their financial decisions.

Almost half (44 per cent) mistakenly believed AI-generated financial information was regulated, with 38 per cent believing it was fine to make an investment decision based solely on the outputs of AI.

Nearly a third (32 per cent) wrongly believed they would receive compensation from the Financial Services Compensation Scheme or Financial Ombudsman Service if AI advice went wrong.

Despite this, 73 per cent knew that AI could provide inaccurate information, while 86 per cent understood the need to check the sources when using AI.

The FCA noted that while general purpose AI chatbots are not regulated, tools that are specifically set up to provide financial advice would be likely to fall within the regulator’s remit.

“AI can help you research companies, understand jargon or explore options before you make a decision,” commented FCA director of consumer investments, Lucy Castledine.

“But you need to understand how you’re protected and continue to use your own judgement. Our InvestSmart website can also help you make more informed decisions.”

Broadstone head of personal financial planning, Rob Hillock, added: “AI is rapidly becoming the first port of call for a new generation of retail investors, but confidence is clearly running ahead of understanding.

“The rapid growth of low-cost trading apps has put stock-picking and crypto investment within easy reach, while AI can appear to offer free, instant guidance on which investments will be the next winners creating a potentially dangerous combination.

“AI can make investing more accessible by explaining complex concepts and supporting research, but it cannot replace regulated financial advice or personal judgement.

“Crucially, it cannot necessarily replicate the personalised assessment needed to determine whether an investment is suitable for an individual’s objectives, time horizon, appetite for risk and capacity for loss.

“Investors must verify AI’s outputs, understand the risks and be clear about what protection they have before putting their money on the line.”

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