Retail investors appear to be open to financial advice from human advisors, artificial intelligence tools or a combination of the two, according to new research from the Ontario Securities Commission (OSC).
In a new report, the OSC detailed the findings of an experiment it conducted to examine the potential role of AI in supporting retail investor decision-making.
The experiment used an online investment simulation to test investors’ response to investment recommendations provided by a human alone, an AI tool, and a combination of the two, when they were provided with $20,000 in hypothetical cash to invest.
“We found that participants adhered to an investment suggestion most closely when it was provided by a blend of human and AI sources,” the report said.
The experiment also found that investors demonstrated no preference between purely human advice and purely AI advice — leading researchers to conclude that “Canadian investors may not have a clear aversion to receiving investment advice from an AI system.”
However, the regulator noted that the preferences observed were not statistically significant, and may be no more predictive than chance.
The report said the experiment highlighted the risks associated with AI tools providing investors with advice that is wrong or not suitable.
“Like human suggestions, AI and blended sources of suggestions had a material impact on the asset allocation decisions of participants, even when that advice was unsound,” it said. “There is a need to ensure that algorithms are based on high-quality data, that factors contributing to bias are proactively addressed, and that these applications prioritize the best interests of investors rather than the firms who develop them.”
Other findings of the research included that:
- there’s a “significant opportunity” for AI to assist with fraud and scam detection;
- AI tools could be used to improve financial inclusion by expanding cost-effective access to investment advice; and
- investors demonstrate a bias to holding higher amounts of cash in their portfolios than most experts recommend.
That last finding “suggests that excessive cash allocations should be a focus of educational efforts, with this focus potentially broadened to appropriate risk-taking when investing,” the report said.
“This research highlights the opportunities AI can create for Canadian investors and market participants,” said Leslie Byberg, executive vice president, strategic regulation at the OSC, in a release. “It is important that we are agile and able to harness these opportunities while ensuring investor protection remains at the forefront of how we regulate.”