The world of financial advice is undergoing a quiet revolution, and at the heart of it is artificial intelligence (AI). While AI has not yet completely eclipsed the value of human advice in the minds of Canadians, it is undoubtedly putting pressure on the traditional advisor fee model. This is particularly interesting because it challenges the long-held belief that human advisors are irreplaceable. In this article, I will explore how AI is changing the financial advice landscape, the implications for advisors, and the potential future of fee models. I will also offer my personal perspective on the matter, drawing on insights from industry experts like Kendra Thompson and Sybil Verch.
AI as a Dinner Party Guest
Kendra Thompson, principal and founder of Epok Advice in Toronto, likens AI to another person at a dinner party. Just as you might seek financial advice from a friend or family member, AI is now another source of information for clients. However, like a brother-in-law, AI may be right or wrong, and it is not controlled, audited, or governed in the same way as the client-advisor relationship. This raises a deeper question: what does this mean for the future of human advisors?
AI as a Cost-Saving Tool
AI is adept at analyzing large amounts of data, summarizing results, and modeling multiple scenarios. It can also speed up onboarding, monitoring, reporting, follow-up, and education. As advisors leverage AI to streamline their practices, clients may expect that greater efficiency will lead to fee reductions. This is another source of pressure on advisor compensation.
Sybil Verch, senior wealth advisor and portfolio manager at Raymond James Ltd. in Victoria, and founder of financial education and empowerment provider The Wealthy Life, agrees. She notes that historically, when an advisor charged 1% of assets under management, most of that fee was for portfolio construction and management. Today, with AI contributing to shrinking costs in those areas, the cost for advisors may be just 0.3% to 0.5% of assets.
The Evolving Fee Model
Over the long term, fee models may need to adapt. This may mean paying a flat fee for a financial plan plus a monthly membership fee or hourly rate to access financial advice when needed. However, fee model evolution can be slow. Thompson sees pricing innovation in specific segments, such as multi-family offices and practices that offer hybrid advice to people who seek guidance only for major life events.
The Human Touch
While AI may be efficient, it cannot replicate the human touch. Advisors can highlight their skill at navigating family dynamics, understanding different decision styles, handling the logistics of putting a plan into action, and connecting clients with a network of experts. Unlike AI, a human being can provide counsel, community, and emotional support.
The Future of Financial Advice
Thompson believes that the need for advice, broadly, or the desire for validation through a licensed human, or the value of orchestration and broader financial life support, is not downticking. In fact, the pivot towards full-service industry is more urgent now than ever before. Advisors should not wait for clients to question their fees; rather, there should be clear, deliberate, proactive expectation-setting around what the service model is and a revisiting of that value exchange as part of ongoing client service.
Conclusion
In my opinion, the future of financial advice is not about replacing human advisors with AI, but rather about finding a way to blend the two. AI can be a powerful tool for advisors, but it should not be seen as a replacement for the human touch. The key is to demonstrate that the support AI provides behind the scenes makes it possible for advisors to increase high-value face-to-face time with clients. By doing so, advisors can shore up their value propositions and ensure that they remain relevant in a rapidly changing world.
