If you want a glimpse of financial planning's future, ask Ted Jenkin.
The co-founder of oXYGen Financial in Atlanta, which targets Generation X and Y clients exclusively, Jenkin has built his practice around several new ideas. One of his basic premises is that, as people live longer, they will have successive careers and retirements. "I think the word retirement is going to be retired," he says.
Jenkin intends to serve these clients - who are, essentially, the clients of the future - through each of these transitions. To do so, he has developed a new approach, a new business model, even new lingo.
"We don't call our folks financial advisors," he explains. "We call them private CFOs."
As the field of financial planning faces a period of enormous flux, Jenkin is only one of thousands of advisors trying to make sense of - and adapt for - an uncertain future. Over the next decade, the profession will remake itself around new client needs and market realities. If recent history is any guide, its evolution will probably be so fast and furious that some of today's great firms will disappear. At the same time, others will likely grow to massive scale and then face giant new competitors - some of which don't exist yet. The profession will realize its latent potential and begin serving clients at all income levels - and it will have to develop new offerings and business models to make that new math add up.
Financial Planning's forecast for planning in the year 2023 is the product of scores of interviews with a broad array of experts, as well as analysis of so-called super trends - economic, sociological and technological - that must be taken into account.
With more clients and more wealth to manage than ever, and wizardlike technological tools to help them, the planners of 2023 will find themselves in a new "golden era of financial planning," in the words of several experts.
However, market losers in the new world order aren't likely to see it that way.
"There is a very high possibility that, in 10 years, financial planning will be available everywhere to everyone at no cost," says well-known planner Ric Edelman of Edelman Financial in Fairfax, Va. He is referring to the commoditization of services like portfolio construction as online competition drives prices to zero. "The days of planners meeting with clients one-on-one and earning tens of thousands of dollars in asset management fees may no longer exist. Planners will still be needed, but they won't be doing what they do today."
Edelman's not giving up his traditional clients, but he's hedging his bets. He recently launched a new service, Edelman Online, which is open to anyone with $5,000 or more to invest. That's a dramatic drop from his previous minimum of $50,000, which is also comparatively low. "In case online proves more popular, I want to have it there so that I'm not left scratching my head wondering why everyone left," he says.
Like Edelman Financial, the largest and most successful firms of the moment are in the throes of reassessing their business models in anticipation of such changes.
Another such firm is Dallas-based United Capital. Founded in 2005, the firm already has $8 billion in AUM and offers online tools that anybody - not just their clients - can use to improve their finances.
"Nobody thought that we would read books on iPads and Kindles," says Brandon Moss, the 35-year-old managing director of United Capital's Dallas-area operations. "Nobody thought that record stores would go away or that travel agents would go away because of sites like TripAdvisor. We would be fools to think that 10 years from now our model is still going to work. It has to evolve."
RATES OF CHANGE
The magnitude of the changes on the horizon can't be overestimated. Underpinning almost all of them are monumental technological shifts. In the decades to come, says futurist Peter Diamandis, a single computer will compute at the rate of the human race. Technological progress continues to obey Moore's Law: that computer processing speeds double roughly every two years while the cost of that processing capacity drops by half. The intensifying firepower will increasingly turn almost every industry into a software-based one.
For planners, technology shifts will continue to automate and link the analytical, computational and logistical aspects of the job. And they will continue to push planning's migration to the cloud and onto mobile devices, where it will be "ubiquitous and ambient," in the words of Sean Belka, director of Fidelity's Center for Applied Technology.
That brings us back to those future clients - the members of generations X and Y who are already increasingly demanding mobile service, rapid responses and new communications protocols.
They also represent one whopper of a super trend: the coming transfer of $18 trillion from baby boomers to their Gen X and Y kids and grandkids. Multiple studies show that descendants frequently leave their parents' planners. To retain next generation clients, planners will be compelled to interact with them online, via video and on the fly, which is where they want to be reached. "Anyone under 40 lives on their mobile devices," Moss says.
Younger clients are also driving a push for greater transparency around fees and services. "I think we will have to disclose everything," he adds - "and we shouldn't have a problem with that."
Yet Moss and others say transparency won't necessarily translate into lower revenue. Many studies of Gen Y clients have found that they expect their planners to earn money for their time - and, unlike boomers, aren't as likely to seek bargains.
However, they do want to see clearly what they're paying for. Some firms say their Gen Y clients hate paying an hourly rate and prefer a predictable monthly retainer.
Another super trend: a massive expansion of global wealth. Aided in part by an expansion in smartphone technology, another 3 billion people will come online in the next seven years, joining the 2 billion of us already connected. Their addition will present massive new market opportunities for investors and customers.
The amount of privately held wealth will grow to more than $330 trillion by 2017 from $223 trillion worldwide in 2012, according to a study by Credit Suisse. And the United States will remain at the top of the wealth heap with $89 trillion.
The increase in private wealth has already enabled ultrahigh-net-worth individuals to take on huge challenges - from the eradication of malaria (Bill Gates) to an incentive program to encourage good governance from African presidents (Sudanese cellphone billionaire Mo Ibrahim) to creating market incentives for corporations to reduce global carbon dioxide emissions (Richard Branson).
Generation Y clients are following that lead, says Moss, engaging in what he calls purposeful investing. They're saying things like "I don't want my money invested in this or that, even if I don't make as much money," Moss says. "It's more passionate investing."
Future generations may recast the meaning of wealth even more broadly. Many see younger generations placing a much higher value on life quality issues over purely monetary ones. For this reason, says Bernie Clark, head of Schwab Advisor Services, "We can't keep defining success as being very, very wealthy."
SHIFTS IN CLIENT NEEDS
At the same time, other huge shifts in demographics, education and longevity are likely to shake up clients' priorities. More than 60% of investable assets will be controlled by women in the next few years, according to Boston Consulting Group - creating a client base with different financial priorities, service requirements and investing styles.
As tuition debt threatens to swamp American consumers, an educational revolution is creating massive open online courses and free services like Khan Academy (used by Bill Gates' kids). These services could usher in an era in which education is free and available to anyone with an Internet connection.
Meanwhile, promising treatment advances could see cancer variations go the way of AIDS while scientists continue to record breakthroughs in their understanding of dementia. As a result, Americans may vastly outlive their parents and grandparents. As a billboard near San Francisco proclaims, "The first person to live to 150 is alive today."
These halcyon projections, of course, must be counterbalanced by enumerating the many existential risks that could come to threaten the planet: from nuclear war to the effects of extreme weather, as well as global cyber terrorism. The proposed Centre for the Studies of Existential Risk at the University of Cambridge will be exploring threats from artificial intelligence itself. However, failing a cataclysmic event, humans and the planners who help them plot their lives could be in for some welcome change.
It wasn't that long ago that planners began adjusting their clients' lifetime projections from 80 years up to 90 and 100. And most interviewed for this story say they expect to adjust those projections again. There are at least 66 living and verified supercentenarians - people who have lived to at least 110 years of age, several of whom were born in the 1800s - according to an organization that tracks the extremely old. Along with the end of classic retirement planning, this may mean big changes to institutions like marriage. "Are you really going to want to stay married to the same person for 200 years?" Edelman asks.
BRAVE NEW MODELS
Financial professionals have been scrambling to develop a model that will serve this brave new world. Betterment, iPlan, LearnVest and Mint are just a few of the better-known names developing online planning options.
Bank of America Merrill Lynch has also sought to tap this market with its Merrill Edge online offering - although critics see it as a dumping ground for lower-net-worth clients now that the bank has upped its minimum investment amount for regular brokerage clients to $250,000.
Still, any one of these players could evolve into a planning giant - if they can only figure out a business model that will pay for itself. Venture capitalists have bet $25 million that LearnVest will do so. Intuit bought Mint.com for $170 million and TD Ameritrade paid $600 million for Investools.
Edelman and oXYGen's Jenkin think that to retain clients who now have access to these online tools, planners will need to develop a whole host of new skills and services. These could include legal, estate planning, accounting, family counseling and career planning, as well as life coaching.
Meanwhile, both the RIA and independent broker-dealer spaces will continue the current wave of consolidation. Unless wirehouses adapt their cultures to embrace transparent, fiduciary business models, these current giants could shrink. However, successful adaptation could see them grow larger than ever.
At the same time, small planning shops should continue to exist and possibly thrive, as long as they are able to keep up with increasing compliance complexity and technology upgrades. Increasingly efficient and affordable technological tools could help them to offer a compelling value proposition that will lure clients away from larger firms and services.
In downtown Atlanta, oXYGen Financial has plans to open a cafe-style retail planning office this spring. Based in part on another of Jenkin's ideas - that the future workforce will be oriented more around consultants and sole proprietors - the space will allow clients to have a free latte, borrow an iPad, even drop in for meetings with their own colleagues. They can also talk about and analyze their finances.
For those who become customers, Jenkin will offer the same extra services some of his current clients receive: in-house estate planning, tax preparation, daily bill-pay services and contract execution.
Jenkin's consumer-driven approach takes its inspiration from an unusual place. "I look at Target," Jenkin says. "Somebody who goes to Target says, 'I only went in to spend $50 and I ended up spending $150.' If you are able to consolidate those services, people want to do it under one roof. It's an unbelievable convenience."
Jenkin bills his $250 million AUM firm as a "financial planning and lifestyle management company." Thus, it offers a subscription concierge service that makes massage appointments for clients, rents limos for the airport and buys theater tickets. Most clients pay Ã la carte for this service, although Jenkin says his firm picks up the tab for higher-paying clients.
One client of the firm, he says, pays oXYGen $4,000 a month out of his annual $1 million income for the full array of services. "He's paying us $48,000, but for him it's a drop in the bucket and he doesn't have to worry about any of these planning and life maintenance issues," Jenkin says.
On the other end of the client spectrum, there is no minimum investment to become an oXYGen client; clients pay a monthly subscription fee ranging anywhere from $100 to $5,000, based on their net worth and the services they choose. The still-new push to serve middle-class clients is remarkable at a time when most growing firms aspire to work with wealthier and wealthier clients. Some even comb through the ranks of their business annually to "fire" their lower-margin clients as they bring on wealthier ones.
Edelman disapproves. "That is the most arrogant, rude behavior," he says. "We believe that it is a moral obligation to serve anyone regardless of how much money we earn."
That's not strictly true: Edelman Online's new offering does require a minimum. But some other firms like his are closer to that goal. And just about everyone in the industry is struggling to make sure their firms are ready for whatever the next decade presents.
"It will be a bit of a horse race to see what the market comes up with, in terms of solutions," says Alois Pirker, a research director at the consulting firm Aite Group. "Certainly there will be some new innovative approaches in 2023. There is no question."
Ann Marsh is the senior editor and West Coast bureau chief of Financial Planning.
12 Big Trends to Watch
Planners will need to help clients prepare to live much longer lives than previous generations. That may mean new distribution calculations for clients; it also may require firms to develop relationships with geriatric care managers. After noticing the first symptoms of dementia, one client of Dennis Stearns' firm, Stearns Financial in Greensboro, N.C., worked with the planning firm to select her future geriatric care manager, who will help her with health care and other critical tasks, and work with the planning firm. "The people in our industry who don't view this as part of their job I think are going to find that the people who do will gain market share in the next 10 years," Stearns says.
Planners also may need to help their clients plan for sequential retirements - periods of work, followed by short-duration retirements that may include training to acquire new skills, and then second careers. Some firms are already doing this. Annuities may play a greater role in helping clients lock in income while protecting savings against market volatility. Some clients will opt to buy longevity insurance that guarantees additional future income should they live past a predetermined date.
Compensation will continue to migrate to fee-only or fee-based models. This will benefit RIAs - who are already mostly paid by fees - over wirehouses. However, more firms may retain a dually registered model, though competitive pressures will force them to disclose commission income on the sale of insurance policies and other products clearly.
As portfolio construction and asset management tasks become more automated in the future, the cost of planning tasks such as these could drop from tens of thousands of dollars at the high end to nearly zero. Partly as a result, planners may need to develop new skills and services for clients in order to generate new streams of income and remain competitive.
Succession Plan Scramble
Succession planning will remain a challenge for many planning firms. Those who do not go to the trouble of setting up painstaking, costly internal succession plans - as have firms like Aspiriant of Los Angeles and Oxford Financial of Carmel, Ind. - will be sold to larger firms, possibly banks, which could undermine their unique cultures. Firms with internal succession plans will use this as a marketing differentiator to concerned clients.
With so much change ahead, most forecasters predict more volatile markets. This will force planners to continually seek new safe harbors for their clients' wealth - like annuities and, in some cases, alternatives.
Regulation & Compliance
The continued implementation of regulatory reforms, including regulations stemming from Dodd-Frank, will also help satisfy clients who demand greater transparency. President Obama's appointment of former federal prosecutor Mary Jo White to run the SEC suggests that the next four years, at least, will see a continued progression of reforms, with a uniform fiduciary standard likely to prevail.
Smaller firms will continue to be acquired by and merge with larger firms to avoid heavy compliance costs in an increasingly complex regulatory environment. Yet as compliance burdens rise, technological advances will cut costs.
A generation raised with new online budgeting and account management tools will create a client population with greater financial literacy. Many planners say that kids who grew up watching their parents go into debt want to avoid the same fate for themselves. More will use online tools to help "gamify" their own financial planning and will bring more savvy to their relationships with their planners.
"I look at the investor today as [being] much more savvy than the investor 10 or 15 years ago," says Deborah Gaff, vice president of Fidelity Trustee Services. "They can find out a lot of information at their fingertips."
As a regulatory framework evolves to allow crowdfunding for equity investing, some believe it could begin to draw substantial capital away from the stock market. It's still too early to say how important it could become as a means of helping firms access new private capital and investors generate reliable returns. What's likely is that, in the short term at least, crowdfunding will be exploited by fraudsters.
Once the kinks are worked out, however, Financial Planning columnist Bob Veres sees it as a threat to traditional markets. "This could send the traditional indexes - the S&P 500 et al. - into a long-term downward trend even as investors in the Internet bazaar generate strong returns along the lines of historical norms," Veres says.
As planning technology develops, advisor Dennis Stearns anticipates having a souped-up version of Apple's Siri personal assistant that will combine client relationship management software with so-called big data tools and companies selling different products.
"That might actually be happening five years from now, but 10 years from now I think it's a lay-up," Stearns says.
Sean Belka at Fidelity predicts that the ability to collect and mine such large amounts of data will change client relationship tools, which will continually mine clients' social media accounts to look for life-changing events like job changes, marriages, divorces, births or deaths in the family. Those findings will flow into action items for planners and their staffs, who can then opt to contact those clients to update wills, account allocations and trusts.
Security & the Cloud
As more technology moves off the desktop and toward mobile access, expect to see more systems with redundant log in requirements. Systems might combine password, fingerprint, voice recognition and iris-scanning entry points to allow secure access, suggests Edward O'Brien, head of technology for Fidelity Family Office Services.
The people at Fidelity's Center for Applied Technology suggest that client data may interact with the cloud but be kept apart to allay security concerns. A portfolio configuration could be encrypted and uploaded, for instance, and then decrypted when downloaded and merged with locally held information about a particular client's account.
More universities and colleges are likely to follow the lead of Texas Tech, which elevated its financial planning program to departmental status last fall - only the second university, after the University of Missouri, to do so. As financial planning programs proliferate and grow in size, more graduates will enter the workforce with financial planning degrees in hand. The industry will need to build new bridges to these graduates in order to effectively bring them into the field. "We are very aggressively trying to engage that community," says Bernie Clark, head of Schwab Advisor Services; Schwab is building a new training and technology center at the University of California at Irvine.
As asset management becomes commoditized, planners will need to get better at quarterbacking. This means drawing together other experts to handle clients' complex planning issues, or hiring that expertise in-house. Fidelity, for example, which doesn't provide branded advice around tax or small business issues, is increasingly finding ways to secure that expertise for its clients.
And planners will need to work more with a new kind of third party when it comes to directing clients' investments, as more trustees see to it that the desires of the older generation continue to be respected - often after the original client has died. Planners will have to answer to these trustees and work with them. "The advisor who is going to be successful is the one who is comfortable with that," says Fidelity's Deborah Gaff.
A new array of outsourced services will emerge between now and 2023 to make it easier for planners to do business on their own. They will provide better planning software, offer new insurance policies and perform HR functions to help planners recruit, interview and test candidates. As outsourcing firms build a critical mass of planners as clients, they will continue to grow rapidly and provide some of the benefits of scale once only reserved for wirehouse brokers. That in turn will allow some planners to resist the roll-up trend and retain a competitive edge while staying independent.
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