An artificial intelligence-powered investment platform has been approved by the Securities and Exchange Commission (SEC) as a registered financial advisor, becoming the first non-human entity to be regulated by the federal agency under the designation.
Investment management tool PortfolioPilot was officially registered as an investment advisor with the SEC two weeks ago under parent company Global Predictions, and its creators say it has several advantages over its mortal counterparts.
Global Predictions CEO Alexander Harmsen says the company spent the past year-and-a-half building a compliance program for PortfolioPilot – which he notes is “completely software” with “no actual human involved in the actual giving of advice, evaluating the portfolios, looking at markets,” etc. – and submitted it as a registered investment advisor through the same process human financial advisors go through.
There was a great deal of back and forth between the company and the SEC throughout the process, given that the rules are not designed for a non-human applicant, but the team was able to fit PorfolioPilot’s AI framework to adapt to the current rules, Harmsen explained. He and Global Predictions’ chief compliance officer also had to pass the human financial advisor’s required Series 65 exam in order to become investment advisor representatives, but PortfolioPilot is doing all the work.
PortfolioPilot uses a combination of AI and Global Predictions’ proprietary Economic Insight Engine to provide users up-to-date information for retail investors. Since launching its ChatGPT plugin in May, the portfolio management tool has launched a series of new features and now has more than 13,000 users and $6 billion in assets on the platform.
Through the AI financial advisor, users are able to receive a portfolio overhaul through a one-click process that reviews and adjusts the user’s existing portfolio based in various factors such as risk tolerance level, investment goals, and macroeconomic conditions. It also offers an AI equity search, which helps customers discover investment opportunities through a search query and generate a list of stocks or ETFs that meet the selected criteria.
But Harmsen says PortfolioPilot’s most popular features so far is its fee optimization tool, which he says provides a clear picture of annual fees, including expense ratios, transaction costs, and management fees, to help users understand the cost of impact on investment returns.
Given that PortfolioPilot is registered with the SEC, Global Predictions is now able to charge for the tool, which was previously free. The company offers subscriptions for a flat fee of $29 per month, which Harmsen says essentially pays for itself: Users that have utilized the platform’s fee optimization tool have saved on average $1,600 in fees, the CEO told FOX Business.
Harmsen says PortfolioPilot is superior to human financial advisors in several ways, the first being that the platform is available around the clock reviewing markets, consuming data, updating advice in real-time while also answering questions.
Another advantage, according to Harmsen, is that PortfolioPilot does not hold the biases that human financial advisors sometimes do.
“I think for many human financial advisors, the incentive is oftentimes just to accumulate as much assets under management [as possible],” he said, noting that human advisors are typically paid on a percentage.
Harmsen says PortfolioPilot is very easy to onboard and easy to use, but that means it is also very easy for customers to leave, so the company has an incentive “to give really good advice, make people feel confidence, actually help people with returns, lower the fees, help people with tax loss harvesting and things like that around their core portfolio.”
“We’d like to think that all the compliance processes that we’ve put in place actually make our system very unbiased,” he continued. “Whereas I think there are a lot of other conflicts of interest for human financial advisors. Not every single human financial advisor does this, but I’ve definitely seen people getting put in more expensive mutual funds than they should be.”