The Hidden Risks of Using AI for Financial Advice

Artificial intelligence is becoming part of everyday life. Many people now use AI tools to answer questions, compare products, explain complex topics, and even help with financial decisions.

For finance, the appeal is easy to understand. AI is fast, available at any time, and can explain topics such as tax, pensions, investing, and budgeting in simple language.

But when it comes to personal finance, convenience can come with serious risks. AI can be helpful, but it should not be treated as a replacement for professional financial advice.

Why AI Can Be Risky in Finance

The main problem with AI is that it can sound confident even when it is wrong.

Most AI chatbots do not “know” information in the same way a qualified financial adviser, accountant, or lawyer does. They generate answers based on patterns in data. This means they can sometimes produce responses that sound accurate but are incomplete, outdated, or false.

This is often called an AI “hallucination”. In simple terms, it means the AI has created information that is not true.

In finance, this can be dangerous. A wrong answer about tax, pensions, inheritance, or investments can lead to real financial consequences.

AI may give incorrect guidance on:

• Tax rules and allowances

• Pension contributions

• Investment risk

• Estate planning

• Cross-border financial planning

• Regulatory or compliance requirements

A person may make a decision based on incorrect information and only discover the mistake later.

Real Examples of AI Getting Things Wrong

There have already been several examples of AI tools giving incorrect or misleading information.

In the UK, research found that some AI chatbots gave incorrect tax guidance. In some cases, users were told they could contribute more than the legal annual limit to an Individual Savings Account, also known as an ISA. This type of mistake could lead to tax issues or the loss of certain benefits.

Another well-known case involved Air Canada. The airline’s chatbot gave a customer incorrect information about a bereavement fare refund. The customer relied on the chatbot’s answer, but the airline later refused the refund. A tribunal found that Air Canada was responsible for the incorrect information given by its chatbot.

There have also been legal cases where AI tools created fake court references. In one US case, lawyers used AI for legal research and submitted cases that did not actually exist. This showed how AI can produce information that looks official, even when it is completely fabricated.

For financial planning, the lesson is clear. If AI can invent legal cases, it can also misunderstand or invent tax rules, investment regulations, or pension guidance.

Financial Rules Change Often

One reason AI can struggle with finance is that financial rules are constantly changing.

Tax laws, pension rules, investment limits, reporting requirements, and estate planning regulations can all change from year to year. In some countries, rules may change even more frequently.

This creates a problem because AI tools may not always have the latest information. Even when they do have access to newer data, they may still misinterpret it or apply it incorrectly.

This is especially important for people with cross-border finances. For example, someone may live in one country, work in another, hold investments offshore, and plan to retire somewhere else. In this situation, advice must consider multiple tax systems and regulations.

AI may mix up rules from different countries. It might apply US tax rules to a UK investor, or confuse South African pension rules with those from another jurisdiction. These mistakes can be costly.

AI Does Not Understand Your Full Situation

Good financial advice depends on personal context.

A qualified adviser will usually consider your:

• Financial goals

• Family situation

• Income and expenses

• Tax residency

• Risk tolerance

• Investment timeline

• Existing assets and debts

• Retirement plans

• Estate planning needs

AI does not automatically understand all of this. It may give a general answer that sounds useful, but that answer may not be suitable for your circumstances.

For example, an AI tool might explain a tax-saving strategy, but it may not know whether that strategy applies in your country. It may suggest selling an investment without considering your tax position, future plans, or the effect on your overall portfolio.

This is why financial advice should not be based on general information alone.

Privacy Is Another Concern

There is also a data privacy risk.

Some users upload sensitive documents into AI tools, including:

• Tax returns

• Salary slips

• Bank statements

• Investment reports

• Passport copies

• Policy documents

This may feel convenient, but it can create unnecessary risk.

Before sharing personal financial information with any digital tool, users should understand how that data is stored, whether it may be retained, and how it is protected.

In financial planning, protecting personal information is just as important as making the right investment decision.

Does This Mean AI Should Never Be Used?

No. AI can still be useful.

It can help people:

• Understand financial terms

• Summarise complex topics

• Compare basic options

• Prepare questions for an adviser

• Model simple scenarios

• Learn more before making decisions

However, AI should be used as a support tool, not as the final authority.

It is especially important to seek professional advice for areas such as tax planning, estate planning, retirement income, cross-border investments, business succession, and regulatory compliance.

Speak to a Human Adviser

AI can help explain financial topics, but it cannot replace personalised advice from a qualified professional who understands your full circumstances.

If you are making decisions about your investments, retirement, tax position, estate planning, or cross-border finances, it is worth speaking to a human adviser before taking action.

Holborn Africa can help you review your financial goals, understand your options, and build a plan that is based on your personal situation — not a generic AI-generated answer.

Contact Holborn Africa today to speak to a qualified adviser and get advice tailored to your needs.

The Best Approach

AI is likely to become an important part of financial services. It can improve access to information and help people understand money matters more clearly.

But it also has limits.

The safest approach is to use AI alongside human expertise. AI can help you ask better questions and understand the basics. A qualified professional can then apply the rules to your personal circumstances and help you make informed decisions.

When it comes to your retirement, tax position, inheritance plan, or family wealth, accuracy matters. AI can be a useful starting point, but it should not be the final word.

This article is authored by Matthew Theron , Senior Associate at Holborn Assets.