How financial planning will change by 2039

Register now

In our ongoing efforts to help advisors prepare for what’s to come, I agreed to be sent on assignment into the year 2039 to interview a financial planner who has successfully made a variety of significant transformations.

I happened to arrive near the end of March, so I immediately apologized for interrupting the usual office scramble to produce quarterly performance statements.

The advisor laughed at my naiveté.

Why are you laughing? Is it my 20-years-out-of-fashion business suit?

What fool sends out quarterly performance statements? Our clients can check the health of their financial plans on their mobile devices at any hour of the day or night, updated with yesterday’s market results.

So what do you talk about when you meet with clients annually or quarterly?

What’s the point of holding those regular meetings? If a client has a question or we have a concern, we can arrange a quick face-to-screen meeting, usually through their mobile device, and follow up with email if necessary. Why would anybody want to hop on a driverless vehicle all the way to our office to review a document they really didn’t want to read in the first place? Here in the future, we deliver value on an as-needed basis, and either side can initiate the contact.

Interesting. How do you charge for that? By the good old AUM?

I think even in your primitive times, before movies went holographic and people spent dollars instead of crypto coins, most people recognized AUM as a relic of the sales culture. We wonder sometimes about the intelligence of your typical client back then. How did they put up with a relationship where they would ask how much you were going to charge and your answer was, “I don’t know. How much have you got?”

If not AUM, then what?

We charge a flat annual fee for the primary financial care that every client receives. If the client requires the services of a specialist, we refer out. The larger firms have their specialists in-house who charge extra fees to help negotiate the annual subscription to a self-driving car service or the mortgage when they buy a second home or detailed tax planning.

What about investments? By the way, while I’m here, could you print me out the latest stock tables? That information might come in handy when I go back into the past.

Who invests in stocks? Or funds or ETFs, for that matter? Today, companies post their capital needs on the internet, and a specialized group of geeky investment-oriented advisors pore through the terms and conditions the firms are offering, and the geeky advisors post THEIR portfolio recommendations on the model marketplaces, which the rest of us simply subscribe to. Call it very sophisticated crowd sourcing, where the internet is a superconductor of capital.

What happened to stocks?

Oh, there are still public companies, but they’re an increasingly vanishing species. That process actually started in your era, when the number of U.S. publicly traded companies dropped by more than half between 1997 and 2018, from 7,322 down to less than 3,700. Meanwhile, if my history books are accurate, non-shareholder companies like Vanguard and TIAA-CREF, which were able to focus on their customers exclusively, mercilessly exploited this unfair advantage in their sectors of the economy. Many executives fought back by converting their companies to benefit customers rather than shareholders — the so-called for-benefit companies, or B-corporations.

Meanwhile, the number of private firms grew as professional and lay investors realized four things. 1) Owning shares of a publicly traded company gave you no power whatsoever over how the company ran its affairs. 2) Many of these corporations were being managed for the benefit of the top executives, who were looting (with impunity) the profits their firms were generating in the form of salaries and stock grants. 3) The great majority of the value of enterprises was built before they went public. 4) In the increasingly fast-moving economy, by the time a company does go public, it is probably trying to defend rather than innovate, and is already ripe for disruption.

So then how do you look at their audited financials?

Today’s audit function probably looks very different from what you people in the past were used to. Now, the accounting firms sell their financial analyses on the internet on a subscription basis to data aggregators who sell it to people like those geeky investment-oriented advisors I mentioned. So they can see what four or five different auditors think about just about every company in the world.

Better yet, instead of the companies paying for the audits, the subscribers are paying for them, which I have to believe greatly improves the impartiality of the process. I’ve always wondered how investors in the past put up with such an enormous conflict of interest, having companies hire and pay their own auditors.

Interesting. Can you tell me how you market yourself these days?

We don’t.

Come again?

In today’s health care industry, people get basic care from a community center that focuses on keeping people healthy and monitoring their lifestyle habits and vital signs in real time. The community center gets our health readings directly from the little chips inside our watches or ankle bracelets.

What does that have to do with financial services?

The very first real business use of AI technology in the financial services space, it turns out, was monitoring the financial health of each of our clients on a daily basis, looking at the loans they’ve taken out, the volatility of their portfolios, the amount they’re saving — and alerting us the instant they detect a variance from our preset tolerances. These AI systems have bots that troll social media — I guess a Luddite from the 2010s would call it electronic stalking — to let us know instantly when a baby is due, or at what online learning program (we used to call them “colleges” before they went virtual) their kids plan to pursue for career training.

What does that have to do with marketing?

Everybody has a financial planner monitoring their financial health. Just like doctors back in your day, we don’t have to market. And we’re all credentialed now. Nobody can practice without a state license and the proper designations. No sales agents can call themselves financial planners or hold themselves out as offering financial advice.

What’s the primary designation? The CFP?

Yes, although there was a bit of a turn to that story. We had three primary designations for a while, but now the CFP and PFS designations have merged, thanks to the CFP finally requiring a financial services undergraduate degree and the PFS broadening from requiring an accounting degree. The CFA designation merged into the others a couple of years ago, but CFA and PFS still exist as specialized credentials of the CFP, along with Chartered Insurance Consultants.

Who still earn commissions?

My mercy, no. As specialists of the CFP designation, they are prohibited from such flagrant conflicts of interest.

So what would be your best advice to people who are reading this in 2019?

I hardly know where to begin. If they’re in a sales or asset-gathering organization, they should start their conversion to professionalism sooner rather than later. If they charge by AUM, recognize that eventually consumers are not going to stand for such a lazy way to set fees. If they’re young, get the CFP before that blessed test gets any harder. If they’re near retirement and have worked to professionalize financial planning, they should relax, knowing that within a couple of decades their efforts, and the efforts of many others, will bring about a true profession.

And if they’re an insurance agent?

Once we stripped away the opaque cost structures and sales commissions, risk pooling actually became quite popular. If those agents can learn to charge fees for their services and analyze the emerging fiduciary products, they have a great future ahead of them.

I have to go. Anything else you want to tell me?

You came here from 2000, right? Invest every dime you can scrape up in Apple. Oh, wait, you said you came from 2019. My bad. Umm … Keep your chin up, try to remember that the world isn’t going to end and learn to enjoy the rare experience of a six sigma event.

Say what?

For reprint and licensing requests for this article, click here.
Fintech Client strategies Artificial intelligence RIAs AUM Commission-based compensation CFPs