AI already does something the financial advice business has been unable to manage thus far – welcoming and talking attentively to people with $1 as well as those with $1-million, writes Rob Carrick.Dado Ruvic/Reuters
You know that chirpy, non-judgy, almost too-friendly voice that AI uses when talking to you?
It’s a bit much sometimes, but there are benefits because it makes people feel heard and seen. You know who doesn’t do that a lot? The financial advice business.
If you’re affluent, the financial advice biz will fall at your feet. “High net” – high net worth – is the mantra for those advisers. Everyone else is welcome to stop by their bank branch to speak to an “adviser” for free, or to try and find an affordable planner who charges a flat fee.
The advice world is fragmented, confusing and inconsistent, even if you have big bucks. I have met many fantastic advisers and planners in my years of covering personal finance – quality people with high levels of emotional intelligence on top of their financial skills.
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But I have also heard many times from clients who feel their adviser talks at them – not to them. They’re not getting answers to their questions, and feeling frustrated or ignored.
Anger about high advisory fees starts here.
AI cannot and will not fully replace human interaction, which at its best is untouchable as a means of helping people feel they are succeeding financially. AI is also not totally reliable yet as a source of financial guidance because of the incidence of “hallucinations” – false or made-up info. Get a second opinion when consulting AI, just as you would for other online sources of information.
But AI already does something the financial advice business has been unable to manage thus far. It welcomes and talks attentively to people with $1, as well as those with $100,000 or $1-million. You just have to ask.
The financial advice business has raised its game considerably in the past decade or so, moderating its former obsession with investing to spend more time on financial planning. There’s also a deservedly hot sub-genre of advice where you pay a flat or hourly fee for a financial plan, with no products or portfolio management services being sold.
But advice-only planners are so popular that many have waiting lists. Also, costs can be stiff for some clients, at several thousand dollars and up for a plan. That leaves bank branches as a source of financial help for many people, a non-ideal situation to say the least.
Job One at big banks is generating revenue, profits and dividends for shareholders, not helping their clients achieve financial success. Sorry, Bank of Nova Scotia, but it’s the banks that are richer than you think. To be fair, the situation is the same at all the big banks.
A snapshot view of the big-bank take on investment advice is the dominance of their high-cost mutual funds. Client-focused financial advice would drive people to exchange-traded funds, which are much cheaper to own and frequently outperform mutual funds.
But banks make billions of dollars from their funds. For an idea of how much money, consider that big-bank balanced funds alone have well north of $100-billion combined. The management expense ratio for these funds is in the 1.9- to 2-per-cent range, compared with around 0.2 per cent for a comparable ETF.
AI can help you replace mutual funds with ETFs, but that’s just a slice of what it’s capable of with smart prompts, or instructions from users.
I recently got a look at AI’s potential through a financial planning app called Gilded. Subscribers can share particulars of their situation with the AI platform Claude and ask hyperspecific questions like, what happens to my retirement plan if I retire early or late, what if I live to 100 and what if I give my adult kids an early inheritance?
You can sign up directly for Claude, ChatGPT, Gemini or another AI platform and ask financial questions, but the usefulness of their responses is directly linked to the specificity of the information you provide. Gilded has mapped out a way to collect the information needed for financial planning and then use it to frame a conversation with AI. Gilded has a basic free version, and a more detailed one that you pay for.
The broader financial advice and investing world has been strikingly slow to try something like this, which speaks to its complacency about providing financial planning to the young and those with low or modest levels of wealth.
I can tell you after almost 30 years of writing about personal finance that people without much in assets are just as interested in doing right with their money as the affluent. They just can’t get the help they need, a problem that AI can easily solve.
Rob Carrick is a personal finance expert and former Globe and Mail staff columnist.
