The financial planning profession, probably like most business enterprises, tends to evolve unevenly. There are periods when you don't see much evolutionary change, and then suddenly it seems like the world is changing right in front of your eyes. Right now, I see a lot of change, and I want you to be prepared for it.
The new technology we call online asset management, or robo-advisory, is getting most of the blame for the changes, because it was initially perceived as a threat that advisors had to respond to. But I think there are other drivers, including the aftershocks of 2008 and the generational shift both in management of advisory firms and their clients.
What are the changes? First, and most importantly, advisory firms are increasingly looking at their fee structures-the subject of the first article in this issue of Inside Information. The article offers some of the drivers. You will need to insulate your firm from the shocks that come when the market goes down, taking your revenues down and, at the same time, driving up your workload as clients need to be reassured. More importantly, you will need to have a model that lets you work with the blue ocean of clients who are either not wealthy or who want to manage their own assets but need financial planning help and advice.
More broadly, I suspect that when advisors shift from an AUM model, they'll be better at attracting mainstream clients as well. I can tell you my own story: I once walked into a planning office that I respected, looking for a lifetime of good counsel and advice. But the entire conversation shifted immediately to money management and an exploration of what assets I had to manage. I protested that I was asking for advice, and tried to steer the conversation back to the services I wanted to receive, and eventually left feeling unaccountably frustrated and defeated. It was not the profession's finest hour.
Other changes? I may be the only person left who remembers the first financial planning software programs, and how many (generally older) advisors declined to use them because they insisted on having “more control over the numbers.” Eventually, we all realized that the numbers are the numbers, whether they come from a spreadsheet, a planning program or a legal pad and HP calculator. The planning programs offered a remarkably more efficient way to give clients the advice they needed.
Today, I see a similar resistance to the online advice platforms that are reaching out to advisors. Yes, you give up hands-on control of the portfolio when you delegate things like downloading, reconciling, rebalancing and tax-loss harvesting to a computer, but at the end of the day, what's wrong with delegating those labor-intensive chores to a computer? More efficiency means more personal service for your clients.
Which brings me to the generational shift. Most advisory firms I talk with have minimum account sizes that are unlikely to be achieved by people in the accumulation stage of their lives. Moreover, those younger potential clients are more tech-savvy than any previous generation, and they see instantly the folly of doing things by hand that could be done by a computer. They fit both the revenue model and the robo-trends; if you manage their assets by computer rather than by hand, your internal expenses are lower, and if you charge retainers, you can create a fee structure that these long-term clients can afford and serve them profitably.
Of course, the people who should be attracting and serving this blue ocean of clients are the successor advisors at established firms; you're much better at marketing to your generational peers than to the firm's current mix of aging decumulators, and you, too, are more likely to see the value in the robo-tools.
These changes will lead to others. If you have more time to spend with clients, you will be pioneering new services-helping clients manage their careers and coaching them; offering Social Security advice; helping younger clients manage their college debt, and, well, there are a lot of potential services that the profession will identify in the coming years.
The main point is that this would be a terrible time to resist change. Successor advisors reading this have a particular obligation to drive change at your firms, because you see more clearly than the founding generation the opportunities offered by new technologies and the blue ocean market-and also because if you don't, there is a real danger that your firm will be being left behind as the profession enters the best years of its short existence.