8 COSTLY Mistakes Using AI For Your Finances

Hey there. Welcome back to the channel. So today we got a really interesting topic and I'm excited to share with you some of the results that I've come up with by using some new technology and some AI technologies in the financial planning field. Roth conversions, tax, all that kind of thing. You know, AI tools are really revolutionizing the way that we manage a lot of things that are important in our lives, even money. But can they replace human financial and tax advisors? Well, the short answer is not really. Our CFPs are beginning to hear a few folks that they talk to refer to using AI to help them solve some pretty complex personal financial planning questions. And in fact, a few have even chosen to rely on AI instead of a human for personalized attention. So I just thought, you know, let's just kind of talk through this and let's get some information out there for you. As the title implies, there's really eight reasons why you got to be really careful about this and why this things that you really need to know about using AI in your financial life and especially for Roth conversions, which is our specialty. So in this video we're going to cover those limitations for financial and tax advice. So you know when to rely on it and when to seek professional guidance. I want you to know that I use AI a lot. I use it for questions on subjects that I don't know the answer to or health related things that I want to research, that kind of general stuff that I could take and apply to me personally. So I just, I thought, okay, let's see what AI could do. So I just wanted to, I just wanted to see what would happen if I ask AI to solve a typical client Roth conversion situation. Right? And just to be real honest with you, it failed miserably. Even at, even at the hands of myself, someone who's seasoned. I know what questions to ask, I know the minutia of where it could go wrong. And I put in all the information that we would use. I typed all that out. I anticipated different things. I acted like I was a real client. Even told it that I plan on giving $20,000 a year to charity if I were that client. So, so I listed all the stuff I put inflation, rates of return, I put in cash flow stuff. I mean, I put it all in there and it, it gave the same answer that a cookie cutter calculator or a financial advisor or tax person who doesn't do this for a living would come up with convert to the top of a certain tax bracket. But it didn't even take into consideration nuances that needed to be taken into consideration that related to the goals that I stated for charitable giving. Even when I went back and asked another question about it, it still gave me very generic boilerplate. I'll just do this instead of something that I know would have created a much better outcome under that circumstance. So while AI really can provide some really quick answers and it can automate certain calculations or even offer general strategies, but when it comes to complex financial decisions, there are major gaps. Maybe that'll change in time, who knows? I don't see how they're going to be able to get it that personalized. But as of today, the one of the most advanced AI tools out there that I use wasn't able to come up, come up to speed to make it work. So here, here are the eight things that I think you really need to know the areas that it lacks. So first of all is there's a real lack of personalization. And AI tools provide generalized advice based on common financial scenarios, but they really lack access to your full financial picture, your income, your assets, your debts, risk tolerance, long term goals and family considerations. So as an example, if you go out, you ask AI, hey, how much should I contribute to a Roth IRA versus a traditional ira? Well, AI can give you the tax rules, but it's, and it may give you an answer, but it won't. Consider your current income, your future tax projections, your future cash flow needs, or even your estate planning goals. And the reason that matters is a good financial plan should be customized to your specific situation, which AI simply can't do with limited inputs and limited abilities. All right, Number two, an AI tool has no legal or, or fiduciary responsibility to you, a human financial advisor, especially if they are fiduciaries as we are, are legally bound to act in your best interest. AI is not. AI does not have accountability. If it gives incorrect or misleading advice, you bear the consequences. And our technology people that work in our company tell me all the time, you really got to check everything that you get out of AI because it doesn't really give graded great information. You just got double check everything you get out of it. And when it comes to detail. So I guess one example is I might suggest a tax strategy that works in theory, but if it leads to an unexpected IRS penalty, you're kind of on your own, right? So I think this is important to understand because when you're making high stake financial decisions like Roth conversions and choosing to pay a lot of tax so that you avoid a lot of tax, a licensed Professional that specializes in the areas you're trying to get information in is going to be accountable for the advice and AI just simply isn't. So number three, the laws change all the time, regulations change, so financial and tax laws are constantly evolving, especially in today's environment. And AI may not always provide up to date information. So for example, The Secure Act 2.0 changed inherited IRA distribution rules. And an AI trained on older data may give outdated advice. If you've not read up on this. The way AI is able to give output is through being trained on data that it can go out and search and find and see or questions that are asked. And the training normally relies on the information that's available. And if AI was trained on older data or data that is maybe not totally correct, it's not going to give great advice. A financial professional that obviously that if they're really invested and they are good at what they do, they monitor real time changes and they proactively adjust the strategies where AI is just relying on information that happened to go grab to be able to give you some information. All right, so number four is really the subject is computer the complexity of tax and financial planning. So financial strategies as you know often involve multi layered calculations and trade offs that AI cannot really fully assess. Deciding between 100% Roth conversion in one year versus a multi year conversion requires projecting income. Understanding the tax brackets, knowing what three future tax law risks may be. Present investment growth, all this stuff, they're all connected, they're all interconnected factors and AI really cannot fully analyze those. Even when I put it through the paces and ask follow up questions and follow up questions if I knew the right question to ask is kind of like, it's kind of like some of people tell me about the Medicare system. If you know the right question to ask, you get all kinds of benefits and things. But if you don't know the right question, you don't. And in this case I even got to where I asked the right questions and I got an answer, but I didn't get really the full complement of what should go into your financial plan. So a tax person or a financial professional who understands this can run very sophisticated simulations. I mean we had, we have our own proprietary software to be able to process all this stuff but, but others are probably out there. But they're able to run sophisticated simulations across a variety of scenarios, all the different tax brackets and they build your life into it to determine that optimal long term strategy. And that optimal long term strategy is re personalized. It's not just tax rates, inflation rate, rates of return. There's a personal element that has to go into it. Number five is there are state specific and personalized tax laws that exist. And a lot of tax strategies vary by state and may not accurately differentiate between federal and state implications for so for example, AI may recommend a particular deduction, but your state's tax code may treat it differently than federal law. A tax professional or a financial planner, they use information and software that ensures compliance with both Fed and state laws that can hopefully prevent you making a costly mistake. All right, number six is kind of the soft part of financial planning, which is just being able to read behavioral and emotional aspects. You know, money is a very emotional subject and AI lacks an understanding of emo, of human emotions, risk tolerances and financial behavior. So AI may tell you to invest aggressively for long term growth because it's going to give you the best return. But if you, if you're the type of person that's going to panic and sell in a market downturn, well, that advice wasn't right for you. Somebody that is a live human being can discern those things and ask questions. With enough experience in the industry, you can learn what are the right questions to ask to make sure that you don't just get the right plan, black and white, but you get the right plan for the people and they can actually live by it and go with it. So the human advisor can help balance out the numbers with the emotions and guide you through a lot of those really tough decisions that are based on your personality, your emotions and risk tolerances. All right, we're getting down to the end here. Number seven. This one is probably more important than any, any of these. So financial AI tools require that you input very personal and sensitive data which believe it or not, really poses a security risk, even if you're using one of the, one of the, one of the big ones. If an AI powered tax tool stores your financial data, even as, even as, as general as I have $1.7 million in an IRA, that opens you up to be a target for hackers or data leaks. And remember, every time you put information into one of these AI tools, you're teaching it about you, you're giving it more information, even if it's just, hey, maybe a health search that you're doing where you tell it you have some certain issue and you want information about it. Folks, you really don't want any more information about you floating around out there for nefarious intent than you possibly just have to. It's Funny, you want security from your bank and your credit cards, but you willingly go out and start giving AI tools a ton of information about you that somebody can come in the back door and find a way to use that against you. And then finally, number eight, when you're using an AI tool, there's really a, and I've kind of already hinted around this, but there's a lack of holistic financial integration of your life. AI may address maybe one issue at a time, but doesn't really integrate financial planning, estate planning, risk management and tax strategies into a nice cohesive plan. It may suggest investing in municipal bonds for tax efficiency, but won't consider how that impacts your estate plan or your long term wealth transfer strategy just as an example. So a good financial plan is interconnected and shouldn't be made out of isolated decisions. And technology, as great as it is, just is not going to be able to put all those pieces together for you. Now I'm getting out and using it to understand financial principles and concepts I think is great. I think that's a perfect use for getting into one of these AI tools and it's, it's a great tool for learning and maybe running basic calculations. So amortize my mortgage with a balance of $300,000 over 15 years at 6%. Show me the difference. If it was at 5%, what if I put down another $20,000? That's a great use for that, but it has very serious limitations when it comes to personal financial and tax advice. So kind of as a final thought, first of all, if you like this kind of stuff, give me a thumbs up and like it and share it with your friends. But as a final thought, use AI for general guidance, but always verify important financial decisions with somebody that really understands this and can put the human element into it, because the human element is very important in the financial planning world. We have a lot of people that are really strictly by the numbers and they perhaps think that the answer is really a black and white answer. And to some degree I'll agree with you. But at the end of the day, money is an emotional subject and even those that are the most data driven people still make decisions based on how I feel about that, am I willing to do that. And all the things, all the suitcases of beliefs and understanding we have about money that kind of come into it. So what do you think? Do you use AI for financial advice? If so, let me know in the comments. I mean, if you found it helpful. Again, don't forget to like it. 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