Advisors: New Fee Model Taking Over?

The financial planning profession, once again, is at an inflection point and the winners of the last revolution may end up the losers when this one runs its course.

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Comments (13)
Great job!!! This is very insightful. I could not agree with you more. Most younger generations seek advice through the internet. Low cost AUM computer based models are on the rise as well as finanial and budgeting packages.

The real value an advisor can bring to the table is wisdom. That only comes through years of experience not only in stock market investing, but life transitions as well. Then, it's a matter of finding those client's that place enough value on an advisors wisdom to the degree that they are willing to pay for it.

My experience over 30+ years has been that only the very wealthy relate to hiring experts. Mass market clients for the most part will not pay for the advice. I think that is where the challenge resides.

I could never understand the logic behind a planner offering any unrelated advice for free as long as a client invests in the stock market. It would be my opinion that many clients have no business investing in the stock market at all, or with just minimal exposure. Secondly, what does investing in the stock market have to do with behavioral issues, life transitions, collectibles, estate planning or anything else? How would a planner be expected to be able to advise on all of the issues and then be specialized in AUM?. There really is no correlation.

I find the general public to be very confused. Responses are often cognitively biased. Their reasoning is often very flawed.

I suspect that once there is recognition (if ever) that some advisors are very knowlegeable and worth compensating, only then will financial planning begin to be in the right direction to be perceived as a profession.
Posted by Michael C | Monday, June 16 2014 at 9:41AM ET
Bob, how many Gen X / independent / fee only advisors did you interview for your article? If it was more than, let's say 10, I find it hard to believe they all operate exactly as you suggest. I co-founded and run a study group comprised of young, entrepreneurial individuals who own RIAs. We come together to collaborate on topics such as compliance, technology, and service processes. We all came from the B/D or Independent B/D world and have a very good sense of what it's like playing for both sides.

The reason I'm wondering about the advisors you discuss in your article is because none of us operate exactly like you're suggesting. For example, those of us that invoice clients under the retainer fee model in fact do manage assets, and not refer them away to the robo world. Additionally, several of us haven't accepted the idea that we're focused on working with clients our own age. Most of us actually target and work with baby boomers.

While many of your points can be said to be true for some of the Gen X advisors out there, there are certainly enough cases I'm seeing where your suggested model and methodologies aren't being implemented. My above examples only scratch the surface of why my colleagues (including myself) aren't operating as you suggest. Additionally, your article immediately slants towards Gen X advisors pushing the retainer model, but what about industry veterans like Roy Diliberto championing the retainer fee model?

I never thought I'd be questioning you, one of my biggest industry heros (don't worry, you still are), but I felt the need to challenge your points based on what I'm seeing out in the trenches. Since I may not check this feedback thread for responses, feel free to look me up to discuss this topic further.

- Greg Lessard
Golden, CO
Posted by Greg L | Monday, June 16 2014 at 11:20AM ET

I'm an advisor who's just started a practice that looks pretty much exactly like what Bob is describing. And there are plenty more. You should look in the XY Planning Network if you would like to see some more examples.

I don't think the argument here is that EVERY young advisor wants to work in exactly this way, but that this is a direction in which many young advisors are heading and that there are particular strengths in this type of approach that the industry as a whole should be considering. Hopefully we all continue to evolve to find better ways to serve more people.

Best of luck to you and your practice.

Matt Becker, Mom and Dad Money
Posted by Matthew B | Monday, June 16 2014 at 12:30PM ET
Charging retainer fees purely for advice? Google Chat, Skype? Pure advice-for-fee model? What this all coming to?

Its called evolution.

Fee-Only was also an evolution. Times are changing and financial advisors need to be aware.......

Good write up Bob!


Marty Morua
Posted by MARTY M | Monday, June 16 2014 at 1:38PM ET
My question is where did these new advisors get their experience?

What I see is advisors who don't know what they don't know.
Posted by philip n | Monday, June 16 2014 at 1:54PM ET
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