Young and less experienced investors now place more trust in artificial intelligence than in television, radio or social media influencers, according to research from the Financial Conduct Authority, which warns that many are leaning on AI without understanding how little protection they have if its guidance goes wrong.

Four in five less experienced investors have used AI for help with investment decisions, and about two thirds reported doing so occasionally or regularly. More than half of those questioned, 56 per cent, said they would trust AI tools, even though almost three quarters, 73 per cent, know that AI can provide inaccurate information.

Traditional sources fare worse. Just under half of respondents, 47 per cent, said they trust television and radio, 46 per cent trust the press, and less than a third, 29 per cent, trust social media influencers, according to the regulator’s survey, which polled 666 UK adults aged 18 to 40 who own investments or would consider buying them in the next year.

The protection gap

The FCA’s bigger concern is what investors believe happens when AI gets it wrong. Almost half, 44 per cent, mistakenly believed AI-generated financial information was regulated, and more than a third, 38 per cent, admitted to thinking an investment decision based solely on AI was fine.

About a third, 32 per cent, wrongly thought they would be entitled to reparation from the Financial Services Compensation Scheme or the Financial Ombudsman Service if AI advice were to be wrong. In reality those protections are limited to people who have received advice that causes harm through an authorised financial adviser, and an investment is not considered for compensation simply because it subsequently performs poorly.

General purpose AI chatbots are not regulated, although tools specifically set up to provide financial advice could fall within the FCA’s remit. If a firm regulated by the FCA were to launch its own AI tool providing regulated financial advice, those using it may be eligible for protection. The regulator has been running live trials of such technology, with Barclays and Lloyds among the banks testing AI tools in its AI sandbox programme.

Use your own judgment

Lucy Castledine, director of consumer investments at the FCA, said: “AI can help you research companies, understand jargon or explore options before you make a decision. But you need to understand how you’re protected and continue to use your own judgment.”

The FCA advised those thinking of investing to make the final decision themselves, to verify the information AI offers, to think long term, and to remember that AI can only work from historical data, meaning it cannot predict how a future investment will perform.

While AI can summarise complex topics and make research more time-efficient, it can also produce incorrect information, known as hallucinations. The regulator publishes guidance on using AI for investment research on its InvestSmart website, alongside explanations of different schemes, golden rules for smart investors, and material on crypto and high-risk investments. It also offers a tool to help investors understand whether they are informed or likely to act rationally, so they can better understand what influences their decision-making.

Jamie Young

Jamie Young is Senior Reporter at Business Matters, covering SME finance, employment law and Westminster policy since 2016. He has reported on every Budget and Autumn Statement since 2018, helped make sense of the ‘covid era’ and the bounce-back loan scheme from launch through the fraud investigations, and broke the magazine’s coverage of the 2024 late-payment reforms. He joined Business Matters straight from completing his BA in Administration from Exeter University and is NCTJ-qualified. Reach him at jyoung@cbmeg.co.uk