If the price of advice need not rise with your wealth, why should the duration of advice rise with your lifetime?
Something important happened in financial advice this week.
Interactive Investor launched an ongoing financial advice service for £100 a month for an individual and £150 a month for a couple.
There are no initial advice fees. No separate charge for producing the financial plan. And, most importantly, the advice fee does not increase simply because the client becomes wealthier.
Interactive Investor says it plainly:
the ongoing advice fee “stays flat even as your wealth grows”.
That may sound like a pricing innovation.
It is more than that.
It challenges one of the deepest assumptions embedded in the traditional financial advice business model:
that the amount somebody should pay for advice should somehow be linked to the amount of money they own.
Interactive Investor has challenged that assumption.
Good.
Now we need to challenge the next one.
Why should the duration of advice rise with your lifetime?
The first broken link: wealth and price
For decades, much of financial advice has been priced as a percentage of assets.
Have £100,000 and a 1% ongoing charge costs £1,000 a year.
Have £500,000 and it costs £5,000.
Have £1 million and it costs £10,000.
Yet the client with £1 million does not necessarily require ten times as much adviser work as the client with £100,000.
Their problems may be more complicated.
Or they may not.
Their portfolio is certainly larger.
But portfolio size and adviser workload are not the same thing.
That distinction has always mattered.
Artificial intelligence now makes it much harder to ignore.
Information processing, cashflow modelling, tax calculations, scenario comparison, document analysis and much of the routine intellectual machinery of financial planning are becoming dramatically cheaper.
So why should the price of the service continue rising automatically with the value of the assets?
Interactive Investor has provided one answer.
It shouldn’t.
Its new advice proposition is aimed at people with at least £100,000 across pensions, savings and investments. Clients receive a personalised financial roadmap, adviser support and ongoing reviews for a fixed monthly fee.
The economics become increasingly interesting as wealth rises.
At £100,000, £1,200 a year represents 1.2%.
At £250,000, it is 0.48%.
At £500,000, 0.24%.
At £1 million, 0.12%.
The work hasn’t become cheaper because the customer became richer.
The pricing model has simply stopped taxing the customer for becoming richer.
That is progress.
But Interactive Investor has only broken one link
There are actually two assumptions buried inside the conventional ongoing-advice model.
The first is:
More wealth → more fees.
The second is:
More years → more fees.
Interactive Investor has largely broken the first.
It retains the second.
Its service is explicitly designed as ongoing advice. Advisers develop the client’s plan, recommend investments, manage those investments and proactively review the plan at least annually. The service is not aimed at people looking for one-off or transactional advice or people wanting simply to implement recommendations themselves.
So the architecture still looks like this:
You become a client.
An adviser creates your plan.
Your assets are placed within the recommended structure.
You pay every month.
Your adviser reviews things periodically.
And the commercial relationship potentially continues for decades.
The percentage has disappeared.
The permanence remains.
Which raises a question I think the financial planning profession now has to confront:
Why does solving a financial planning problem create an apparently indefinite financial planning relationship?
Why does a three-hour problem become a thirty-year relationship?
Imagine applying the same model elsewhere.
You visit a solicitor because you need a will.
The solicitor prepares the will.
And then charges you every year for the rest of your life because you might someday need another legal question answered.
Or your accountant completes a complicated piece of tax work.
The problem is solved.
But instead of charging for the work performed, the accountant takes a percentage of your bank balance every year until you die.
We would immediately ask whether the commercial arrangement matched the work being performed.
Yet in financial advice the indefinite relationship has become so normal that we rarely question it.
The justification is usually continuity.
Markets change.
Tax rules change.
Lives change.
People retire.
People divorce.
People inherit money.
People become ill.
All true.
But there is a hidden leap in the reasoning.
Because someone may need expertise again, it does not follow that they must continuously purchase expertise until they need it.
These are different propositions.
Continuous access is not the same as continuous intervention
This distinction matters enormously.
People need continuous access to healthcare.
They do not need a doctor sitting beside them every day.
People need continuous access to legal protection.
They do not employ a solicitor throughout their lifetime.
People need continuous access to emergency services.
They do not keep a firefighter permanently stationed in the kitchen.
Financial expertise should increasingly work the same way.
Available when needed.
Not permanently inserted between people and their own decisions.
That leads to a very different architecture for financial planning:
continuous agency, with episodic expertise.
Rather than:
continuous expertise, with episodic agency.
The distinction sounds subtle.
It changes almost everything.
From adviser dependency to financial capability
The conventional advice model starts from a reasonable observation:
Financial decisions can be complicated.
But it often arrives at a questionable conclusion:
Therefore you need an adviser continuously.
There is another possibility.
We can make people more capable.
Artificial intelligence changes what is possible here.
A person can increasingly have access to tools capable of explaining pensions, analysing documents, modelling retirement scenarios, organising their finances, comparing alternatives, identifying questions, maintaining records and preparing them for conversations with specialists.
None of this eliminates the need for human expertise.
It changes where that expertise belongs.
The planner does not disappear.
The planner moves.
From permanent intermediary to expert support.
From keeper of information to interpreter of complexity.
From gatekeeper to mentor.
From somebody who manages your financial life to somebody who helps you manage it.
That is the transition the Academy of Life Planning is building towards.
Three generations of financial advice
We can now see three distinct architectures emerging.
1. Percentage-priced advice
The traditional model.
Your adviser charges a percentage of the assets being advised.
Your wealth increases.
Their revenue increases.
The commercial relationship is usually ongoing.
Price follows wealth.
Revenue follows time.
2. Flat-fee ongoing advice
Interactive Investor represents an important evolution.
The price no longer automatically increases with the portfolio.
The customer receives planning, investment recommendations and ongoing adviser support for a predictable monthly amount. Interactive Investor is part of Aberdeen, and its advisers recommend investments from Aberdeen’s MyFolio range held through its Wrap platform, so this is not independent whole-of-market advice.
Nevertheless, the pricing innovation matters.
Price no longer follows wealth.
Revenue still follows time.
3. Agency-based planning
This is the model we are developing at the Academy of Life Planning.
People maintain their own financial and life information.
AI helps them understand it.
Tools help them model choices.
Education helps them develop capability.
Human planners become available when complexity, stress or significant change makes another brain valuable.
And when the problem has been solved?
The intervention can end.
The person’s capability remains.
Price follows the problem.
Expertise follows need.
Agency stays with the individual.
That is a fundamentally different economic model.
This is where AI becomes genuinely disruptive
Much of the discussion about AI and financial advice focuses on whether AI will replace financial advisers.
I think that is the wrong question.
The more interesting question is:
What happens to the economics of expertise when intelligence becomes abundant?
For centuries, expertise was scarce.
Information was difficult to obtain.
Calculations were laborious.
Research took time.
Financial modelling required specialist software.
Regulation and complexity created substantial knowledge barriers.
Professional expertise therefore became bundled together.
Knowledge.
Calculation.
Administration.
Judgment.
Reassurance.
Implementation.
Monitoring.
And distribution of financial products.
AI begins to unbundle that package.
Some elements remain highly human.
Judgment.
Empathy.
Challenge.
Accountability.
Wisdom.
Understanding another person’s fears and aspirations.
Helping someone act when they are overwhelmed.
But many other components are becoming extraordinarily cheap.
Information retrieval.
Calculation.
Document interpretation.
Scenario generation.
Education.
Record keeping.
Preparation.
Monitoring.
If those components become cheap, the commercial architecture surrounding them eventually has to change.
The customer should receive what we might call the decision dividend.
The productivity gain created by technology should not be captured entirely by the institution providing the service.
Some of it should return to the individual in the form of lower costs, greater capability and greater control.
The objective should be successful redundancy
There is another principle worth introducing.
A good professional relationship should sometimes make itself less necessary.
Teachers ultimately want students who can think independently.
Physiotherapists want patients who can move without them.
Coaches want people who develop their own capabilities.
Parents raise children to become adults.
Financial planning should contain the same aspiration.
I call this:
successful redundancy.
Not because professionals have no continuing value.
But because the highest expression of professional value should not always be permanent client dependence.
Sometimes the greatest success is that the person needs you less.
That possibility is almost impossible to embrace when the business model depends upon the relationship continuing indefinitely.
The incentive architecture matters.
If revenue depends upon assets remaining under advice, the organisation is naturally incentivised to retain assets under advice.
If revenue depends upon ongoing relationships, the organisation is naturally incentivised to maintain ongoing relationships.
That doesn’t make advisers bad people.
It makes incentives powerful.
Good system design recognises that.
The next advice gap may be an agency gap
The financial services industry talks constantly about the advice gap.
Millions of people cannot afford traditional financial advice.
Flat-fee services such as Interactive Investor’s may help narrow that gap.
That should be welcomed.
But there is another gap we talk about far less.
The agency gap.
The distance between what people could decide for themselves with the right tools and support, and what they currently believe must be delegated to somebody else.
AI can dramatically reduce that gap.
Not by telling everyone what to do.
By helping people understand enough to choose.
That is why the distinction between advice and agency matters.
Advice answers:
What should I do?
Agency asks:
Help me understand this well enough to decide.
Sometimes the answer will still be:
Speak to a regulated financial adviser.
Or an accountant.
Or a solicitor.
Or a pension specialist.
Expertise remains essential.
But expertise becomes something we can parachute in when required, rather than infrastructure that must permanently surround the individual.
Interactive Investor has started an important conversation
I welcome what Interactive Investor is doing.
A large investment platform with more than 500,000 investors is telling the market something significant:
the price of financial advice does not have to rise simply because the customer has accumulated more wealth.
That challenges the economics of percentage-based advice.
And once one assumption has been challenged, another becomes visible.
If the price of advice does not need to follow wealth…
why should the duration of advice follow lifetime?
Perhaps the future of financial planning is not a choice between humans and AI.
Perhaps it is a better division of labour between them.
AI provides continuous capability.
Humans provide episodic expertise.
The individual retains continuous agency.
That is the architecture we are building at the Academy of Life Planning.
Not a world without advisers.
A world in which needing advice does not mean surrendering control.
And where the success of financial planning is measured not by how long somebody remains a client…
but by how capable they become without us.
Academy of Life Planning 