Financial advisory fees significantly impact retirement income, gifting potential, and inheritances. Research that I had published in The Journal of Retirement last fall demonstrates that a 1% asset under management fee reduces annual income by 15.38% using a safe withdrawal rate methodology when all other factors are held constant. While financial planning offers valuable benefits, it’s crucial to consider its cost.
Unlike other areas of financial services that have seen a “race to zero” in fees, financial advisory fees have remained relatively stable. However, the advent of artificial intelligence (AI) and large language models (LLMs) is poised to exert downward pressure on these fees, ultimately benefiting retirees through increased retirement incomes.
AI’s Role in Reducing Fees
The potential for AI to lower fees is exemplified by new Custom GPTs available in OpenAI’s ChatGPT Store. These AI models, built upon ChatGPT, incorporate an additional layer of training based on extensive financial planning materials like books, papers, and other materials.
While internet searches can yield similar information, they often require significantly more time and may be influenced by marketing agendas. The ability of these new Custom GPTs to provide instant access to financial knowledge has the potential to address financial literacy challenges on a broad scale. And, coming in the fall of 2024, the exchange will be fully voice enabled not only in prompting a question from the user, but hearing a response back as well. Amazing.
It’s important to note that these new Custom GPTs are designed to offer general financial education rather than specific financial advice, maintaining a clear distinction between AI-assisted learning and personalized financial planning.
The Emergence of Education-Only Financial Planning
As part of the “Advice-Only” financial planning movement, which eschews asset under management fees, I anticipate the rise of “Education-Only” financial planning. This approach leverages AI to make financial information readily available to the public, potentially forcing human financial advisors to reconsider their fee structures to remain competitive.
Looking ahead, I expect the development of AI-powered software capable of providing specific financial advice, accompanied by regulatory adaptations to monitor this new method of advice delivery.
The future of financial planning lies in increased accessibility, reduced costs, and enhanced financial literacy for all. That’s a very good thing.
Decoding the Successful Retirement Journey: Vol.3, No.4
