Abstract
The increasing use of AI models in investment services has raised concerns about ineffective responses, power disparity, and investor harm caused by emotional disruption. Generative AI-driven investment service providers often fail to address consumer issues quickly, guiding customers through superfluous and meaningless verbiage or professional terminology in infinite loops without providing an option to talk with a human customer service staff. Customers who are “stuck” in ineffective or inaccurate responses from AI agents may waste time for investors, make poor investment or trading decisions, and the platform may profit from investor rational decision-making owing to investors’ emotional disruption.
This article examines these concerns through the lens of broker-dealers and investment advisers regulation in the United States. While the Investment Advisers Act, Securities Exchange Act, and Regulation Best Interest set fiduciary duty and duty to work for the best interest of investors, these rules are designed on the assumption of human service providers who can feel the emotional pressure from investors and have physical and mental limits. These rules fail to address the fundamental power disparity between investors and the platform, as well as the harm and new forms of conflicts of interest caused by AI-powered investment service providers.
To address these problems, this article argues for expansive duties of brokers and investment advisers to guarantee that AI models provide objective and effective recommendations free of biases and conflicts of interest. Customers should be able to get timely human service with a one-click simple operation during regulatory business hours. Investment service providers should establish algorithmic evaluation programs to prevent fraudulent activities and conflicts of interest. These programs should include personnel, policies, standards, and procedures for evaluating and adjusting models. Human specialists with expertise in programming and compliance are needed to analyze source code, examine documentation, and assess training data and model design. When there are no conflicts of interest between the investment service providers and the investor, or when investors are willing to accept the risks and conflicts associated with certain investment suggestions, comprehensive and accurate disclosure is essential for monitoring and regulation. This involves revealing not only any conflicts of interest, but also the decision-making process, data, and algorithm utilized to make important investment recommendations.
Recommended Citation
Shuping Li and Wei Shen,
Confronting AI-Induced Power Disparity and Emotional Disruption: Expansive Duties of Broker-Dealers and Investment Advisers,
45
Nw. J. Int'l L. & Bus.
31
(2024).
https://scholarlycommons.law.northwestern.edu/njilb/vol45/iss1/2
Included in
Banking and Finance Law Commons, Consumer Protection Law Commons, Finance and Financial Management Commons, Public Interest Commons, Public Law and Legal Theory Commons, Securities Law Commons
