With the likely phase-in of fiduciary rules, the onslaught of low-cost investing choices and the public having easy access to free investment advice, many advisers are concerned about their compensation going forward. Some even fret about going out of business.
Advisers who provide primarily investment advice or comprehensive financial planning, but charge based on assets under management, have great cause for worry.
What can they do?
CHANGE YOUR ROUTINE
Investment management is a small part of what a good financial planner provides for clients. Many advisers create a comprehensive financial plan for new clients. They may evaluate spending, savings and whether their investment plan is aligned with the goal of future retirement or current retirement spending needs.
A better adviser will add the following:
· Review all insurance needs, including property and casualty coverage, and consult appropriate specialists if there are issues.
· Read estate planning documents and make sure clients understand exactly what is contained in wills and trusts.
· Check all beneficiary designations and titling of assets to make certain an estate will pass as intended.
· Review tax returns to make certain clients are optimizing all tax-planning opportunities – not just investment tax savings.
· Clarify life goals and help clients put their goals in perspective of their financial life.
What would the best adviser do?
Help clients implement the plan and revisit it on a regular schedule. Too many clients complain about big plan books that sit on their shelves. They don’t understand what the adviser told them to do and are offered no help in how to implement recommendations.
Once they sign on with a firm, they rarely hear from them. If you are one of those advisers, you should expect to find that firms like mine are picking up your clients by the droves.
CHANGE THE CONVERSATION
For years, advisers have focused the conversation on investing. They’ve inadvertently groomed the public to think the only important work planners do is manage money. This message is reinforced by charging clients fees based only on assets under management.
Client meetings focus on investment returns, and adviser success is measured based on how the market performs. Since an adviser cannot control or predict the market, this is a setup for failure.
At our firm, we provide education to prospects about our investment philosophy and process; they must agree to this before they become clients. The initial plan covers their goals, how they are doing in relation to their goals and our recommendations to move forward. A task list is created to implement the recommendations, most of which are our responsibility.
After the plan presentation, client assets are moved and we have a second meeting to develop and sign the investment policy our firm will follow. Ongoing meetings focus on problems, concerns and updates.
We rarely discuss investments, and clients rarely ask. Our investment professional reaches out to clients once a year to ask if they have any questions or if they want to meet about investments.
Only a handful of clients ask additional questions, and one or two per year come in specifically for an investment meeting. However, they love to review their goals, their projections or to discuss what is going on in their life and ways we can assist them with transitions. These conversations are much more delightful than talking about stocks and bonds.
The financial advisory profession would be incredible if the entire community changed the conversation from managing investments to helping clients manage the role money plays in their life. It would be a delight to clients and provide us with a much more rewarding occupation.
CHANGE HOW YOU CHARGE
Most advisers charge for their services based on assets under management. Some truly only manage assets and provide little additional financial planning for their clients. This type of adviser will most definitely become extinct – people have learned they don’t have to pay 1% for someone to pick a bunch of mutual funds.
A large number of advisers who charge based on assets actually do solid comprehensive financial planning. I’ve never understood why they charge based on assets. The refrain I’ve heard over and over is, “People won’t pay for financial planning,” so they basically give away the service as a value-add to their clients. This is a huge mistake for the industry.
Our firm started charging flat retainers based on complexity in 2007. I say confidently that people are more than willing to pay for planning. The caveat is that investment management is a part of financial planning.
The CFP Board requires one class each in estate planning, investments, insurance, employee benefits and tax planning. Why do advisers insist on breaking investments out like it is some separate and special service? We manage all of our clients’ assets, and it is included in the retainer model.
Do we want to thrive as a profession? Then the entire advisory community needs to change what we do, how we talk about it and how we charge. By doing it quickly and en masse, we can better serve clients, the profession and compete on a better playing field.
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