AI is another free source of information for clients that may be accelerating the downward pressure on advisor fees.Nuthawut Somsuk/iStockPhoto / Getty Images
Two years ago, the Canadian Investment Regulatory Organization released the results of a survey that found 44 per cent of Canadians who sought financial guidance from finfluencers and social media believe they’re getting equally valuable information from these sources as from a traditional financial advisor. Adding salt to the wound, 12 per cent thought this information was more valuable.
Now, artificial intelligence has entered the chat. So far, it hasn’t eclipsed the value of advice in the minds of most Canadians, with a poll last August from Leger finding that only about one-third of Canadians would trust AI to give them financial or legal guidance.
But AI is another free source of information for clients. Kendra Thompson, principal and founder of Epok Advice in Toronto, sees it accelerating the downward pressure on advisor fees.
She compares it to the tendency among millennials to crowdsource financial advice from family and friends. “AI is just another person at that dinner party,” she says.
The trouble is, 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.
Clients aren’t the only ones using AI tools, of course. Many firms have recognized AI’s potential to boost efficiency within advisory practices.
After all, AI is adept at analyzing large amounts of data, summarizing results and modelling multiple scenarios, says 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. It can also speed up onboarding, monitoring, reporting, follow-up and education.
However, as advisors leverage AI to streamline their practices, clients may expect that greater efficiency will lead to fee reductions – another source of pressure on advisor compensation.
To combat that expectation, it’s important 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.
“Spend as much time in front of clients as possible, because that’s where you really uncover the opportunities to increase wealth, improve people’s lives and provide peace of mind,” Ms. Verch says.
When clients see an advisor’s fee tied to assets under management or to transactions, they assume they’re paying for help making investment decisions – and that’s one place in which AI is encroaching.
Ms. Verch says that, historically, when an advisor charged 1 per cent 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 per cent to 0.5 per cent of assets.
Financial planning and behavioural coaching are worth 1 per cent or more a year, in Ms. Verch’s opinion, but clients need to understand that.
Over the long term, fee models may need to adapt. That may mean paying a flat fee for a financial plan plus a monthly membership fee or hourly rate to access financial advice when needed, Ms. Verch says. But fee model evolution can be slow.
Ms. Thompson says she’s seen 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.
Although much of the wealth management industry can’t yet offer a menu of services priced separately, she says advisors can still explain all the services they offer and assign a value to each component.
For advisors to shore up their value propositions, they need to show clients they’re contributing to well-being in ways that aren’t easy to commodify or replicate.
For example, Ms. Thompson says, 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 contacts as well as emotional support, she says.
“I don’t see a downtick in the need for advice, broadly, or the desire for validation through a licensed human, or the value of orchestration and broader financial life support, which is ultimately where the full-service industry is pivoting,” Ms. Thompson says. “That pivot started well before AI tools were sophisticated – and it’s more urgent now.”
She says advisors shouldn’t wait for clients to question their fees. Rather, there should be “clear, deliberate, proactive expectation-setting around what your service model is and a revisiting of that value exchange as part of your ongoing client service.”
She adds: “Play to your strength. Play to the thing that’s hard for an AI agent to replicate.”