Shadow AI in Advice: Why Sovereign Platforms Beat Unofficial Tools

AI has slipped into advice work faster than most policies. Advisers paste text into web tools to tidy wording. Paraplanners try a chatbot for a tricky explanation. Client service grabs an online translator to speed up an email.

Most of this is well intentioned. Almost none of it went through risk or compliance.

That is shadow AI.

Shadow AI is the use of unapproved AI tools and models inside a business. It is the AI version of shadow IT, and it is already common. One 2024 study found that around half of employees use unapproved AI tools at work and would not stop even if those tools were banned. (SecurityWeek) IBM’s 2025 Cost of a Data Breach work goes further: about one in five organisations surveyed had already suffered a cyberattack linked to shadow AI, and those breaches cost on average 670,000 US dollars more than incidents at firms with little or no shadow AI. (IBM Newsroom)

For Australian advice firms, that is not some distant IT problem. It is a very direct advice, privacy and licence problem.

How shadow AI really shows up in advice firms

In advice practices, shadow AI does not look like hackers and rogue scripts. It looks like busy people trying to get work done.

Typical examples:

• An adviser pastes parts of a client’s Statement of Advice into a public chatbot to “simplify the language”.
• A paraplanner uploads meeting notes into an unvetted AI tool for a quick summary.
• A staff member uses a free browser add-on to translate or rewrite client emails.

Every one of those actions can expose personal information, advice history, product names and sometimes full client identifiers to external systems that the firm does not control.

Most organisations that end up with shadow AI did not set out to be reckless. Research from KPMG describes shadow AI as a symptom of friction between what staff need and what official tools provide: if internal options are slow, outdated or blocked, employees go looking for something that actually works. (KPMG)

If your practice does not give people a safe, capable AI platform, you are almost inviting them to improvise with risky ones.

wWhy shadow AI is a special problem for financial advice

All businesses face data and security risk from shadow AI. Advice firms have an extra layer: regulatory obligations and trust.

Existing Australian guidance is clear on a couple of points:

• Regulators expect AI use to fit inside current obligations on best interests, appropriate advice, record keeping, and privacy. There is no “AI carve-out”. (Amazon Web Services, Inc.)
• Boards and licence holders remain accountable for outsourced technology decisions, including AI models and data handling.

Shadow AI cuts across both.

If client information is copied into a consumer-grade AI tool, you may have:

• transferred personal information overseas
• created a record you do not control or log
• broken your own privacy and outsourcing policies
• generated an “advice artefact” (for example a draft explanation) that was never captured in your systems

Worse, you probably don't know it even happened.

From a regulator’s point of view, this is simply uncontrolled outsourcing and poor risk governance. From a client’s point of view, it is their data being sent who-knows-where.

The hard numbers: shadow AI is not fringe any more

The Aveni sovereign AI paper pulled together some useful baseline data:

• Around 80 percent of companies have piloted generative AI, but only about 5 percent have achieved measurable business impact.
• IBM’s analysis found that 13 percent of organisations reported AI-related security incidents, and about 20 percent of AI-related breaches were linked to unauthorised tools used by employees.

Recent security research has pushed this further:

• A 2025 workplace AI study by Zluri found that about 80 percent of enterprise AI apps in use were unmanaged, meaning they sat outside formal IT control. (businesswire.com)
• IBM’s 2025 breach report shows incidents involving shadow AI systems cost on average 670,000 US dollars more and are more likely to expose personal data and intellectual property. (IBM Newsroom)

In other words: shadow AI is widespread, and when it goes wrong it hurts more.

For advice firms, where each record can represent a real person and a real complaint, those numbers are not acceptable.

Why sovereign platforms beat banning AI (or pretending it is not happening)

Some firms respond to shadow AI by telling staff “do not use any AI tools at all”. On paper, that is simple. In reality, it rarely works. As Google and others have noted, shadow AI grows when employees feel official tools are missing or hard to use. (Google Services)

A more realistic approach is to replace unsafe improvisation with a safe default.

That is where sovereign platforms come in.

A sovereign AI platform for advice gives you:

• A known, governed place to use AI
  Staff do not have to hunt for tools. They use one platform that is approved, monitored and documented.
• Local control over models and data
  Client information is stored and processed in Australia under your chosen providers and legal framework, not sprayed across random overseas services.
• Assurance and auditability by design
  Actions are logged. You can see which prompts were used, what documents were generated, and how they changed over time. That makes later reviews, complaints or regulatory questions easier to handle.
• Domain‑tuned behaviour
  Models can be tuned for advice workflows and terminology, reducing the temptation to “go outside” because the internal tool “doesn’t get it”.

Once people have a fast, capable, compliant way to get their work done, the attraction of unofficial tools drops quickly.

What a good sovereign AI platform for advice should do

To genuinely replace shadow AI rather than sit alongside it, the platform needs to feel better, not just safer.

At minimum, look for:

• End‑to‑end Australian data handling
  Clear guarantees on where data is stored and processed, including logs and embeddings, not just primary storage.
• Advice‑specific workflows
  Meeting notes, file notes, paraplanner instructions, client communications and reporting that match how advisers and paras already work.
• Built‑in logging and role‑based access
  Every significant AI action should be traceable, and access should reflect real roles (adviser, paraplanner, CSO, compliance).
• Clear guardrails
  Simple on‑screen cues about what the AI is allowed to do, what data it can see, and when a human must review outputs before they are sent.

If your “official” AI is clunky, generic or obviously unhelpful, shadow AI will creep back in. The bar for adoption is not perfection, it is “better than the workaround”.

How to bring shadow AI into the light in your firm

You do not have to fix everything at once. A practical path for an advice practice looks something like this:

1. Find reality, quietly
   Talk to advisers, paraplanners and client service staff. Ask what AI tools they are actually using. No blame, just facts.
2. Draw simple red lines and green lanes
   Red lines: types of data or tools that are clearly off‑limits (for example, client identifiers in public chatbots).
   Green lanes: specific sovereign tools and workflows that are safe and encouraged.
3. Roll out your sovereign platform against real needs
   Start with the tasks where staff already use AI unofficially, such as note tidying, explanation drafting, or document structuring. Show that the official tool is better.
4. Educate with real examples
   Use anonymised scenarios to show what can go wrong with shadow AI and what good practice looks like instead.
5. Monitor patterns, not individuals
   Track usage at a pattern level. The goal is to see where the official platform still falls short and improve it, not to run a witch-hunt.

Over time, the combination of capability plus governance beats scattered improvisation.

The takeaway

Shadow AI in advice is not mostly about bad actors. It is about good people plugging gaps with whatever tool is in front of them.

Banning that behaviour outright is unlikely to work. Ignoring it is worse.

The sustainable answer is to give advisers, paraplanners and client service staff a sovereign platform that is:

• safe enough for compliance and licence obligations
• strong enough that people actually want to use it
• transparent enough that you can explain it to a regulator or a client

Sovereign platforms do not just reduce risk compared with unofficial tools. They create the trust foundation that lets you use AI deeply in your practice, rather than nervously at the edges.