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Kitces: The next stage of advisor evolution

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As the world of financial advice evolves, so do the services that advisors provide to clients, the business models by which we operate and the labels that we use to describe ourselves. In the past 50 years, our titles have changed from insurance agents and stockbrokers to financial advisors and financial consultants, to financial planners, and now wealth managers.

This ongoing differentiation appears to moving toward an ever-more-holistic model that United Capital, the RIA, has dubbed “financial life management.” In this approach, planners increasingly focus on advising clients on work, employment and spending behavior. Research finds that consumers consider these the real focus of their financial life story, rather than their savings and investment portfolios.

Of course, most advisors have limited skills and even fewer tools to support clients when it comes to areas like managing their human capital and providing guidance on spending and household cash flow. Yet this gap provides the opportunity for firms to differentiate themselves.


If we wind the clock back 50-plus years, the people whom consumers interacted with from the financial services industry were most likely to be agents who sold insurance door to door. The rise of sales agents in the insurance world was paralleled by the rise of stockbrokers, accelerated by the de-regulation of fixed trading commissions in May 1975.

The key turning points for most people in their financial life stories were moments that entailed significant financial trade-offs, and yet had nothing to do with saving and investment.

Yet the explosion of sellers peddling insurance policies, stocks and later mutual funds eventually become so overwhelming, that the best salespeople realized they needed a better, more consultative approach to differentiate themselves. The end result was the creation of the CFP designation and an increasingly consultative selling approach that started with understanding a client’s goals and then selling them what they needed as a solution.

By the 1980s, these new financial advisors were becoming more successful than their stockbroker and insurance agent brethren. As it was harder and harder to get paid for selling insurance or brokering stocks, the stockbroker and insurance agent labels vanished from the business cards, to be replaced by financial adviso and financial consultant.

At the same time, though, a subset of advisors sought to not just facilitate the sale of insurance policies, stocks and mutual funds for a commission, but to actually receive fees for the advice itself. These independent advisors, for the first time largely unaffiliated with a particular single product company, came together at a Society of Independent Financial Advisors meeting in 1982, and ultimately formed the National Association of Personal Financial Advisors a year later to support the growth of fee-only financial planning advice. By the 1990s, this group of comprehensive financial planners began to increasingly compete with the consultative-selling advisors.

Of course, their success drove a subset of individuals to evolve an even deeper, more value-added approach. By the late 1990s the wealth manager — supported by pioneering platforms for independent advisors like Schwab Financial Advisers Service — had risen over the financial planner, providing a combination of discretionary investment management services coupled with comprehensive financial planning advice, and built primarily around the AUM model.


And now, competitive forces – including the ongoing commoditization of investment management services as typified by the robo advisor and the growth of mega-brands like Vanguard, Charles Schwab and Fidelity offering financial planning – are once again putting pressure on wealth managers to further differentiate themselves. The launch of digital personal financial management platforms like Mint.com in 2006 made it possible for consumers to centralize all aspects of their financial lives and, in the process, illustrated the gap in advice that still remains for all the non-financial-product-centric aspects of a client’s financial life.

Forward-thinking advisory firms are once again suggesting it’s time for the labels to evolve further.

Accordingly, forward-thinking advisory firms are once again suggesting it’s time for the labels to evolve further — with United Capital CEO Joe Duran making the case that the new moniker should be comprehensive financial life management, where the advisor has a service model to support the client’s entire finlife needs.


As United Capital defines it, finlife is about taking a holistic view at the intersection of a household’s life and financial decisions and providing advice.

In fact, United Capital commissioned Riedel Strategy, a social science-based research firm, to conduct a study to evaluate the question of how consumers think about their own financial lives and whether it conforms to the industry’s traditional approach.

In the process of asking clients to talk about their own life story in the context of their finances, the research revealed that, for most people, the story focuses remarkably little on saving and investing. Instead, the key chapters of their stories are oriented around working and spending decisions, so that investing and saving are simply a byproduct of the decisions in those other categories.

The key turning points for most people were moments that entailed significant financial trade-offs.

In turn, the key turning points for most people were moments that entailed significant financial trade-offs, from the decision to live close to home or far away, send children to public or private school, take a high-paying stressful job over a lower-stress one with less pay, or pursuing job stability versus starting a new business. Yet even in these situations, the research found that the financial or money aspects of the decision are generally not the driver of the choice; instead, consumers try to make such decisions to align with their personal values (as the study puts it, we strive toward our ideal selves) and then try to assess the financial consequences of the desired choice.

From the perspective of traditional planning and wealth management, the results of the research suggest that our typical savings-and-investment-centric focus is not actually how most consumers think through their financial issues and make significant life decisions. Instead, savings and investment are the outcomes of those other working and spending-related life decisions. This means giving truly effective financial advice requires de-emphasizing portfolios and making contributions to them.


Some planners may claim that finlife management isn’t anything novel or unique; it’s simply our current world of comprehensive planning when it’s actually done right and in a holistic client-centric manner. Life planning industry pioneers like Mitch Anthony and George Kinder have suggested for years that good planning starts by focusing on a client’s personal values and that financial decisions flow from the pursuit of nonfinancial life goals.

Accordingly, perhaps the reality is that financial life management is really little more than a label for the combination of financial planning and life planning – two disciplines that already exist.

But the fact that many planners and wealth managers might already be doing financial life management doesn’t mean we can’t still have a new or better or clearer term to articulate the service model going forward.


As with the other advisor transitions over the years, the industry’s evolution to subsequent stages of value added by advisors is about more than just adopting a new label. Each step also involves developing new core competencies, new service model capabilities and, in most instances, an entirely new business model as well.

Yet it’s quite notable that while the United Capital research finds that for most people, work and career decisions constitute the biggest segment of their financial life stories, the typical advisor skill set (and our product-centric financial planning software) has almost no tools to address this. In fact, not a single one of the CFP Board’s 78 principal topics of the CFP curriculum addresses anything about helping a client to earn more income from employment.

Similarly, most planners and the software tools we use are also remarkably weak in providing advice and guidance around cash flow and spending decisions. At least cash flow management is one of the principal CFP topics, but it’s only in the past year or two that several personal financial management software solutions for advisors have even begun to incorporate cash flow tracking tools.

Even then, many advisors seem to have little active involvement in helping clients determine if their spending is reasonable or not, and we certainly don’t provide any kind of proactive cash flow management services such as bill paying.

Accordingly, it’s not entirely surprising that United Capital decided to buy the FlexScore digital planning tool, which has unique capabilities to help clients monitor their cash flow and progress toward spending goals.

And of course, if planners and wealth managers really are going to evolve away from a portfolio-centric investment management service into these more holistic financial life management services, the AUM business model altogether may start to seem less and less relevant.


What would the new business model of financial life management entail? Most likely, some form of retainer fees, either as an annual or monthly financial life management retainer or perhaps some form of income-and-net-worth retainer fee.

This in turn opens up a new set of clientele who may not even have the assets for a traditional wealth management AUM model but do have the interest and financial wherewithal to pay for financial life management.

In the end, I admit that I’m not entirely certain financial life management will be the term that sticks for the emerging new model of holistic financial advice. It’s as good as any label, but with the ever-growing differentiation pressures growing on most advisors, it seems the time is ripe for a new term to emerge and the next stage of advisor evolution to get underway.

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