12-10-2024

Financial knowledge for everyone: Research project on ethical AI consulting

Gaining valuable knowledge about your own finances via app – automated financial advice makes it possible. AI-based systems advise users on investment decisions and financial investments. Meanwhile, these instruments are very sophisticated as regards technology. However, little consideration has yet been given to the ethical principles according to which such AI-supported systems should operate. Prof. Dr. Jens Hogreve, holder of the Chair of Business Administration and Service Management at the KU, and an international team have now researched the criteria that a robo-advisor must meet in order to make ideal financial decisions.

The researchers identified six key criteria that can form an ethical framework for the implementation of AI in financial advice. Although automated, holistic financial advice is already technically possible, considerable ethical reservations are currently still preventing its success.

As a basis for the key criteria, the researchers evaluated ethical principles of the Organization for Economic Cooperation and Development (OECD), the EU and private companies. On the one hand, good automated financial advice leads to increased well-being according to the researchers' analyses: "Financial advice is good if it makes consumers happy and has a positive impact on their subjective and objective financial well-being", explains Professor Hogreve. Secondly, financial advice must be in line with the objectives of the individual; ideally they should be able to weigh up short-term and long-term personal goals.

A simple understanding of AI-based financial advice is also key for the researchers: "The individual shouldn't have to spend too much effort or time to understand the advice", Hogreve continues. At the same time, the recommendations should be easy to implement so that users can actually accept the advice. Therefore, as Jens Hogreve's team emphasizes, good automated financial advice must take account of individual preferences, for example with regard to risks.

Finally, the researchers name transparency as the final key criterion that determines the successful implementation of such financial advice: "Financial advice is good when it is transparent. Consumers should be able to trust the advice they are given, and that requires that it is transparent."

These criteria are intended to help revise existing robo-advisors and design new ones in such a way that as many people as possible receive low-threshold support when making financial decisions. "Over the course of a lifetime, individuals have to make many decisions that have a significant impact on their financial situation: Buying a house, changing jobs, starting a family, working more or fewer hours per week and deciding when to retire are just a few examples of important and often complex events that affect almost everyone. These events demand well-founded and coherent decisions", summarizes Hogreve.

The research project "Automated financial advice: quality, ethical and design challenges" is funded by the renowned Netspar network. In addition to Professor Hogreve from the KU Ingolstadt School of Management, researchers from Maastricht University are also involved.

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