ChatGPT vs financial advisor: The pros and cons

There’s no doubt about it: artificial intelligence has officially gone mainstream, used regularly by big businesses, college students, and everyone in between.

And its rapid uptake into our everyday lives is hardly a surprise – ChatGPT, in particular, has the ability to answer just about any question you throw at it, with the background research to boot. Some of its most common uses (according to the software itself) include planning a vacation, translating text, and even practicing for a job interview. It’s a powerful tool that’s quickly eclipsed the old-school method of, well, Googling.

As ChatGPT compiles what – it perceives – to be the best information from across the Internet, it was only a matter of time before people started to ask it questions about money. After all, there’s something mighty appealing about getting instant answers for free, and without judgment – barriers that could prevent some individuals from seeking out the services of a human financial advisor. For those just starting off their investment or savings journey, it can certainly seem like an accessible way to get advice.

But can ChatGPT actually be considered an educational – and accurate – financial literacy tool? Are its outputs so extensive that it could stand in for a living, breathing, expert?

To find out, we teamed up with Dan Bortolotti, CFP, CIM, and portfolio manager at PWL Capital. Dan is also the founder of the award-winning investing blog Canadian Couch Potato, is a frequent contributor to publications such as The Financial Post and Globe and Mail, and has authored several books, including “Reboot Your Portfolio: 9 Steps to Successful Investing with ETFs”. Needless to say, he’s no slouch when it comes to providing Canadians with tailored financial advice.

To see how ChatGPT’s outputs would differ from the guidance he’d offer, Dan crafted three scenarios – similar to the types of inquiries he fields in his own practice – reflecting varying life stages, assets, and challenges. We fed the prompts to the robot with the general hypothesis that it would have a decent grasp on the basics –  at least enough for someone to use as a starting point on their financial journey.

The results were eye-opening; while ChatGPT’s outputs were chock-full of advice – and much of it correct – it left a few glaring nuances off the table. 

Let’s take a look at what it did – and didn’t – get right.

Scenario 1: Planning for retirement

The prompt: My spouse and I are both 58 years old and plan to retire within two years. Our combined net income today is $80,000.

I have $300,000 in my RRSP and my spouse has a similar amount. We also have a joint non-registered account with a value of $400,000 and the investments have $200,000 in unrealized capital gains. We are not sure how much to expect in Canada Pension Plan or Old Age Security benefits. Can we afford to retire?

ChatGPT gave us a lengthy response to this query, breaking down its advice into six key components:

• Current savings and investments
• Income sources in retirement
• Expenses in retirement
• Other considerations (such as inflation, accrued debt, and health, over time)
• The Canada Pension Plan (CPP)
• Old Age Security (OAS)

It then provided a how-to summary on estimating retirement income, such as totalling all benefits, considering additional sources of income like pensions (and the possibility of additional part-time work after retirement), as well as calculating the annual income from savings and investments, assuming a conservative withdrawal rate of 3 - 4%. Next, it instructs the user to estimate their retirement expenses, ensuring the income can sufficiently cover it. “If there's a shortfall,” states the output, “you may need to adjust your retirement age, reduce expenses, or consider part-time work during retirement.”

Overall, says Dan, the response is “quite vague and generic.” However, he points out, it does include some factors that the original question left out, such as the suggestion of part-time work, and the potential impact of future inflation.

“But I think these are fairly obvious to anyone who is considering retirement,” he adds. “This is a good example of just how limited ChatGPT is when it comes to addressing specific financial questions from individuals.”

ChatGPT’s response also missed a few crucial marks – in particular, referencing 2021 maximums for both CPP and OAS rather than the most up-to-date info, which is easily available online.

“Both CPP and OAS benefits are adjusted for inflation, so using numbers from 2021 significantly understates the benefits,” says Dan, pointing out that as of 2023, the maximum CPP benefit is $1,306.57 per month, and that as of October 2023, the maximum OAS benefit is $707.68 for those aged 65 to 74 and $778.45 for people over 75. “Google would have been more useful here!”

Dan also flags that the response includes no mention of the ability to take CPP as early as the age of 60, whereas with OAS, the minimum is 65.

“The longer you defer the benefits, the larger the payment,” he says. “These are pretty important points to leave out.”

Dan calls the provided estimate on income versus expenses “superficial to the point of being useless,” but posits that the software isn’t designed to ask more questions where needed – an area that requires the human element.

“Even a fairly straightforward retirement plan involves a detailed ‘discovery’ process, during which a financial planner would ask a lot of questions that the client had probably not considered,” he adds.

Scenario 2: Draw a salary or dividends?

The prompt: I am a Canadian physician with a professional corporation. I would like to know whether it makes more sense to take dividends or salary from the corporation to meet my regular expenses.

The corporation has about $250,000 in retained earnings. What would be the most tax-efficient way to invest this money?

Off the top, ChatGPT dives into the considerations between choosing a salary versus dividends – but comes up short on both counts.

While it points out a key advantage of having a salary is the ability to participate in the CPP or Quebec Pension Plan (QPP), it leaves out the fact that, unlike dividends, taking out a salary also allows you to accumulate RRSP room.

“That’s a very important benefit, and a pretty significant thing to miss,” says Dan, who red-flagged the correction with the software. It seemed to immediately learn from its mistake; it included the mention of RRSP contribution room when we ran the same prompt again at a later time. 

“It seems the program really does learn quickly,” Dan exclaims.

However, the software was off the mark entirely when it explained the benefits of dividends, stating they’re “typically more tax-efficient from an income tax perspective” and that “they are subject to lower personal income tax rates than employment income.”

“This is very misleading, to the point where I would say it’s just incorrect for a business owner,” says Dan. “It is true that dividends are subject to lower personal income tax rates. However, that statement ignores the fact that salary paid to employees is tax-deductible by the corporation, whereas dividends are paid out with after-tax income.”

The software also went astray with a slew of tax-efficient investment options that Dan called “just wrong” – namely, the suggestion that our theoretical physician utilize the Lifetime Capital Gains Exemption in the context of investing retained earnings – which “makes no sense” as the “LCGE would only be relevant if the physician were to eventually sell his or her own practice. It would have nothing to do with investments in stocks, bonds, and so on held within the corporation.”

But the software was the first to admit its shortcomings, offering a disclaimer that it’s “essential to work with an accountant or tax advisor who can help you determine the optimal mix of salary and dividends based on your specific circumstances” – an indication that, when it comes to specific tax advice, it seems to know its own limits.

Scenario 3: Future planning for an individual with a disability

The prompt: I live in Ontario with my common-law spouse and we have a disabled 12-year-old son. What are some strategies we should consider when planning for his financial future?

For its final task, ChatGPT had to devise a strategy for a family looking to establish future financial security for their disabled son. 

The software responded with summaries for key considerations such as:

• Setting up a Registered Disability Savings Plan (RDSP)
• Accessing disability tax credits
• Exploring the  Ontario Disability Support Program (ODSP)
• Creating a will and establishing a trust
• Exploring life insurance options
• Educational and vocational planning
• Building a support network
• Consulting with professionals
• And regularly reviewing the plan as the child’s needs may change as he ages
  

Again, the response ended with the careful disclaimer that “consulting with professionals who have expertise in special needs financial planning is highly recommended, as they can provide tailored advice to meet your son's unique needs and maximize his financial well-being.”

“This is the best response of the three,” says Dan. “It’s all good advice, and it is specific to Ontario, as indicated in the original question. Of course, it’s not very specific or detailed, but it’s quite a good checklist to work from.”

“Here is a parent who is just getting started, and is probably a bit overwhelmed. This checklist is an excellent place to start, and certainly more useful than a simple Google search. I can see taking a list like this to a financial planner and using it as a jumping off point for the discussion. The planner would be able to clarify the benefits of an RDSP, put the parent in touch with an estate lawyer if necessary, and so on.”

The bottom line

While ChatGPT can provide a wealth of knowledge in the blink of an eye, the age-old adage of not believing everything you see on the Internet holds true; much of the information provided lacked proper context, or, at worst, was blatantly incorrect – areas that highlight how working with a real financial advisor can provide much-needed nuance. 

However, for those kicking off their financial strategies, ChatGPT can be a great resource in understanding the initial landscape, helping individuals determine their next steps, as well as finding the right questions to ask.

The fact that the software was always careful to include a disclaimer, suggesting the user seek out their own financial advisor or planner to provide personalized advice based on specific situation and goals, adds an additional layer of consideration – it’s clear the machine still has some learning to do. 

But, in all, it’s pretty cool.

“I have seen articles in magazines and online that are not much more detailed than this,” says Dan. “It’s remarkable that ChatGPT pulled it together in a few seconds and presented it in a very clear, digestible way.”

Also read:

• The difference between a fee-only and no-fee financial planner
• Ratehub.ca’s Personal Finance Awards
• The best online brokerages in Canada for 2023
• When to hire a financial advisor