The world of financial advice is undergoing a quiet revolution, and it's all thanks to the relentless march of artificial intelligence (AI). Once upon a time, the advisor fee model was a straightforward affair, with clients paying a percentage of their assets under management (AUM) for the privilege of having a financial guru at their beck and call. But now, AI is challenging this model in ways that are both fascinating and potentially disruptive. It's not just about the numbers; it's about the very nature of the advice itself.
The Rise of Finfluencers and AI
Two years ago, a survey by the Canadian Investment Regulatory Organization revealed a startling truth: 44% of Canadians who sought financial guidance from finfluencers and social media believed they were getting equally valuable information as from traditional financial advisors. Even more shockingly, 12% thought this information was more valuable. This finding underscores a shift in how people perceive and value financial advice. And now, AI is entering the fray, offering another free source of information for clients.
According to Kendra Thompson, principal and founder of Epok Advice in Toronto, AI is accelerating the downward pressure on advisor fees. She draws a parallel between AI and the tendency of millennials to crowdsource financial advice from family and friends. Just like a brother-in-law, AI may be right or wrong, and it isn't controlled, audited, or governed in the same way as the client-advisor relationship. This raises a deeper question: If AI can provide information, why do we still need human advisors?
AI's Efficiency and Its Implications
AI's ability to analyze large amounts of data, summarize results, and model multiple scenarios is undeniable. It can speed up onboarding, monitoring, reporting, follow-up, and education. But as advisors leverage AI to streamline their practices, clients may expect fee reductions. This expectation is a double-edged sword. On one hand, it puts pressure on advisor compensation. On the other, it highlights the need for advisors to demonstrate the value of their services beyond just the numbers.
Sybil Verch, senior wealth advisor and portfolio manager at Raymond James Ltd. in Victoria, and founder of The Wealthy Life, agrees. She emphasizes the importance of spending as much time in front of clients as possible, as that's where the real opportunities to increase wealth and improve lives lie. When clients see an advisor's fee tied to assets under management or transactions, they assume they're paying for help making investment decisions. But with AI contributing to shrinking costs in portfolio construction and management, the cost for advisors may be just 0.3% to 0.5% of assets. This shift in cost structure raises a critical question: What is the true value of an advisor's services?
The Human Touch: An Irreplaceable Asset
Financial planning and behavioral coaching are worth 1% or more a year, in Verch's opinion. However, clients need to understand this value. Over the long term, fee models may need to adapt, perhaps to a flat fee for a financial plan plus a monthly membership fee or hourly rate to access financial advice when needed. But this evolution can be slow.
Thompson sees pricing innovation in specific segments, such as multi-family offices and practices offering hybrid advice for major life events. While the industry may not yet offer a menu of services priced separately, advisors can still explain all the services they offer and assign a value to each component. The key is to show clients that advisors contribute to their well-being in ways that aren't easily commodified or replicated.
For example, advisors can highlight their skill at navigating family dynamics, understanding different decision styles, handling logistics, and connecting clients with a network of experts. Unlike AI, human advisors can provide counsel, community, contacts, and emotional support. Thompson believes that the need for advice, validation through licensed humans, and the value of orchestration and broader financial life support will continue to grow. The pivot towards full-service industry support started before AI tools were sophisticated, and it's becoming more urgent now.
The Future of Financial Advice
Advisors shouldn't wait for clients to question their fees. Instead, they should proactively set clear expectations about their service model and regularly revisit the value exchange. Thompson emphasizes the importance of playing to advisors' strengths, focusing on aspects that are hard for AI agents to replicate. In the end, the human touch remains an indispensable asset in the world of financial advice, and advisors who recognize and capitalize on this will thrive in the evolving landscape.
