The most useful thing said about artificial intelligence this month came not from a lab unveiling a “smarter” model, but from the chief executive of Microsoft (MSFT) telling his customers to trust their models less.
On October 10, Satya Nadella tweeted an argument that companies should treat advanced AI models as insider risks, the security world’s term for the danger posed by trusted people who hold the keys to sensitive systems. The models are not malicious, he stresses; anything capable enough to be useful can also err or be compromised.
His remedy is borrowed from decades of practical corporate security wisdom: give the model a verified identity, grant it only the permissions the job requires, log everything it does, and keep an emergency brake within a human’s reach. His summary line is one we would post over every desk where AI is in use: “We need to separate the supply of intelligence from the authority over it.” (We could ask probing questions about which of these really deserves to be called “intelligence,” but that would be an academic digression.)
A machine may supply the intelligence, but the authority has to stay with people.
On our client call last November, we described how we use AI tools to scan earnings calls, filings, and research with high efficiency, flagging shifts in a company’s tone, guidance, or risk language. We summed it up in one line: AI is our research co-pilot, not our portfolio manager. Almost a year on (and a very eventful year it has been in technology), we use these tools still more, and that line has held.
An Example of Its Utility
One use for us is parsing documents that are (maybe intentionally) arduous and exhaustive reads. Annuity contracts are a prime example: consequential, dense, and drafted by the seller. Their terms sprawl across riders (optional add-on benefits, usually at extra cost), surrender schedules (penalties for withdrawing money early, which typically shrink year by year) and crediting formulas (the insurer’s method for deciding how much of any market gain actually reaches you). We’ll offer some specific thoughts on annuities below, prompted by just a recent line of questioning from a client. An AI tool can now digest a contract like that in minutes and answer plain questions. What does it cost to get out in year three? What exactly does this rider guarantee, and what does it charge for the privilege? The tool points to the clause behind each answer, and we can then read that clause. Work that once meant hours of cross-referencing now begins as a conversation, and the conversation often ends up suggesting the real question we should have asked first.
Nadella is writing for companies deploying agents, AI systems that act on their own: sending messages, moving data, executing transactions. His permissions, logs, and kill switches exist because those systems hold real authority.
At Guild, we have taken a simpler route. AI that we use has no authority at all. It cannot place a trade, move money, contact a client, or touch an account. It reads, summarizes, and answers. Every investment decision passes through a person who answers for it, and when you’re a client, you can speak to that person on the phone without going through a maze or an AI agent first.
Farther Finance, who provides investment reporting and wealth planning platforms that we use, has an AI policy that rhymes with what Satya Nadella suggests, but on a smaller scale. Client and confidential information stays out of personal and consumer AI accounts; no tool touches it until it has been vetted, starting with whether the vendor trains its models on what users type; and whoever uses AI owns the result, no matter who else reviews it. The buck stops with us.
This letter is general commentary — the wide-angle view. It is not a portfolio. What we do for the families we work with is the opposite of “wide-angle”: we make portfolios built around one household’s circumstances, taxes, timelines, and appetite for exactly the kind of volatility described above. We keep that roster of clients deliberately small, because that sort of attention doesn’t scale. If you’d like to talk about what it would look like for you, contact us; we will make the time.
Some Investment Implications
Reading Nadella’s tweet as a warning, it sounds ominous. Reading it from an investor’s perspective, it is highly constructive. Here’s an historical anecdote that we came across. Few people were willing to ride a passenger elevator until Elisha Otis stood on a raised platform in New York in 1854, had the rope cut, and let his safety brake catch him; that gesture of confidence in his own engineering, putting himself on the line of his own technology, probably ultimately helped allow skyscrapers to be built. Maybe Nadella’s call for a governance layer is AI’s “Otis moment.” Enterprises will have to buy or strengthen their “trust plumbing,” from identity controls to audit trails, before they hand agents anything that matters.
Nadella is of course hardly a disinterested party, since Microsoft itself sells a good deal of that plumbing. Self-interest and good sense, however, do point the same way here. The corporate payoff from autonomous agents may arrive more slowly than the boldest forecasts assume, because the brakes have to go in before the driver steps on the gas. The supervised version, meanwhile, is increasingly paying off now, for companies that are adopting it intelligently.
Now, a real AI use-case, on the topic of annuities, which we mentioned above…
With AI Tools, the Six Most Useful Words in an Annuity Sale Might Be “Can You Send Me a PDF?”
Academic economists have long praised annuities and wonder why more people don’t buy them. They actually call this the “annuity paradox.” To us this is no more a paradox than any of the other foolishness that can come from academic economists: what you have to do is look at the real-world implementation of the thing they’re examining as an abstract concept — and then you see where all the human shenanigans enter in.
The type of annuity that economists praise represents only about 4% of the type that Americans buy. That simple income annuity is longevity insurance: you hand an insurer a lump sum and it pays you for life, funded partly by buyers who die early. However, almost all of last year’s annuity billions went into deferred annuities, which are really investment accounts in an insurance wrapper that seldom become lifetime income.
The trouble starts with the exit: surrender charges that can penalize withdrawals for a decade or more. The seller’s commission, which can exceed 10% of the premium, is usually hidden in the price. A 2022 study in the Review of Financial Studies found variable annuity sales roughly four times as sensitive to brokers’ financial interests as to buyers’, with brokers paid more for selling the costlier, more often complained-about contracts. The theory endorses the simple 4%; the fees and the fog live in the other 96%.
The Insurer Behind the Promise
Every guarantee rests on one insurer, and some insurers are growing less disciplined about risk. Insurers have increasingly put premiums into private credit, loans made outside public markets and harder to value, while the money set aside for policyholders moves to offshore reinsurers, sometimes with less capital behind it than U.S. rules would require. In May, Treasury Secretary Scott Bessent convened state insurance commissioners on both trends. Last month, for example, South Carolina asked a court to take control of Atlantic Coast Life, citing high-risk investments.
Six Words
Before you sign, ask the seller: “Can you send me a PDF?” In our experience, we have seen a lot more language in these contracts dedicated to restrictions that limit policyholder rights, than we see language articulating the issuer’s responsibilities. Give the full contract and every rider to a capable AI tool, with personal details redacted, and have it find what leaving costs, find every fee, and find what your heirs would receive. Then read the clauses it cites for yourself. A seller who balks has told you something. (And by all means, feel free to give us a call to discuss.)
If you do buy, make sure the death benefit is large enough to matter to your heirs, and find its price. A guarantee to heirs is life insurance inside the contract, paid for in lower income or higher fees.
The larger truth is that almost everything an annuity sets out to do can be done another way: lifetime income by delaying Social Security, tax deferral in a retirement account, protection for heirs with term life insurance, and, for families with ample assets, even an uncertain lifespan by holding enough to fund a long one. Bundling those jobs into one contract mostly bundles their costs out of sight, and that’s not in your best interest. From our perspective, it makes more sense to buy each kind of protection on its own, where you can see clearly what it costs. Feel free to forward this to anyone sitting across a kitchen table from an annuity pitch.
Thanks for listening; we welcome your calls and questions.
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