Advisors using AI must comply with regulatory obligations to protect their investors. Investors have recourse when advisors use artificial intelligence in a manner that put their holdings at risk.
FINRA, the Financial Industry Regulatory Authority, published its 2026 regulatory oversight report concerning AI in December 2025. Continuing and emerging trends FINRA identifies concerning generative artificial intelligence (GenAI) are many.
Advisors have obligations addition to acting in the best interests of investors. FINRA RN 24-09 reminds advisors of their additional obligations when using GenAI. They also have duties to protect their investors from GenAI fraud. Advisors also cannot blame others for the failing of AI programs since FINRA requires the oversight of such third-party vendors.
The report identified many risks to investors from advisor use of artificial intelligence:
- Autonomy: AI agents acting autonomously without human validation and approval.
- Scope and Authority: Agents may act beyond the user’s actual or intended scope and authority.
- Auditability and Transparency: Complicated, multi-step agent reasoning tasks can make outcomes difficult to trace or explain, complicating auditability.
- Data Sensitivity: Agents operating on sensitive data may unintentionally store, explore, disclose or misuse sensitive or proprietary information.
- Domain Knowledge: General-purpose AI agents may lack the necessary domain knowledge to effectively and consistently carry out complex and industry-specific tasks.
- Rewards and Reinforcement: Misaligned or poorly designed reward functions could result in the agent optimizing decisions that could negatively impact investors, firms or markets.
- Unique Risks of GenAI: Keep in mind that the unique risks of GenAI—bias, hallucinations, privacy—also remain present and applicable for GenAI agents and their outputs.
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