As former Wall Street institutions lie in ruins, experts are predicting that the forces that brought them down—and changes that these downfalls may unleash—will make life far different for financial advisors in the not-so-distant future. In this newly transformed practice environment, planners will have to become more adroit, more flexible and, much to their chagrin, willing to earn less money for doing more work.

"It will be a tighter and tougher market for financial planners," says Matthew Tuttle, president of Tuttle Wealth Management in Stamford, Conn. "The strong will survive, and the weak won't."

Unbundled World

Experts expect an evolving business model in which even the best advisors will end up taking a lower percentage on assets under management (AUM). "The [current] fee structure that's evolved during periods of stock market returns of 17% to 20% during the past 25 years doesn't work in a world of lower returns," says Bill Schultheis, a principal at Sagemark Wealth Management in Kirkland, Wash. "Fees are going to contract. They just have to."

Even highly successful planners will likely take a lower percentage of AUM because clients simply won't be willing to continue paying the same rates for dismal growth in asset value. "I think asset management fees will go from 100 to 50 basis points" or even lower, says Bob Veres, Financial Planning columnist and publisher of Inside Information and Media Reviews services. The rest "will be made up by financial planning fees."

In the world Veres envisions, planners won't be able to bundle all their services into a single package paid for by a fixed percentage of AUM. Instead, they'll unbundle and expand those services, charging one fee, most likely a percentage of AUM, for asset management—plus à la carte fees for wealth management services such as estate planning and insurance consulting. "Planners will need to emphasize planning over asset management, and fees over commissions, as asset management fees trend lower and become more visible and more easily questioned," Veres says.

Some planners have already begun using this wealth management model, charging separate fees for individual services. For those who haven't, Veres says, "there will be a learning curve" as planners adapt by expanding their arrays of personalized services that will build and preserve client rosters.

Review Risk

While sizing up clients for personalized services, planners are well-advised to revisit clients' risk tolerances and asset allocations, says Karen Maloney Stifler, president of True Wealth Associates in Hudson, Ohio. She notes that a market meltdown, however unpleasant, is an effective test of clients' real attitudes toward risk.

"We have lots of questionnaires, but we may need to say to clients, 'You're responding a lot differently than you did on the questionnaire,'" Maloney Stifler says. Because it can show a client's true reaction to the downside of risk, a troubled market may provide opportunities to get asset allocations more in line with core attitudes.

Others, including Scott Leonard of Leonard Wealth Management in Redondo Beach, Calif., don't view calamity-based, media-influenced reactions as true indications of baseline risk tolerance. Leonard prefers to assess clients' risk tolerance irrespective of recent headlines to determine clients' underlying, long-term tolerances. Regardless, the current tumult may be sufficiently profound to affect long-term attitudes, and clients' daily emotional states are part of that picture.

Not all loss is market-related, of course. Wall Street's troubles may push planners and clients to think and talk about the possibility of other calamities. "We need to place a greater emphasis on worst-case-scenario planning," Maloney Stifler says. "We're optimistic people, but we need to bring clients into the possibility that things will not go according to plan, even in a drastic way."

This may mean rethinking clients' monthly spending and available cash cushions, as well as client preparations for the possibility of health crises, job loss, family changes or major property damage. "It's a tough conversation to have," Maloney Stifler admits.

It may also be tough to channel additional assets toward disability, health, long-term care, life, property and casualty insurance. What may be slightly less tough, now: convincing clients in or near retirement to set aside enough cash to cover two years of living expenses, which Maloney Stifler believes is only prudent. These vehicles don't offer the upside of equity investments, but they may provide real peace of mind. "Clients like being in control of their destinies," Schultheis says, and disaster preparedness provides stability.