I’ve often lamented that the founding generation of planners is holding back progress. This is surprising, since this was the group, who, back in the 1970s through the 1990s, led a surprisingly effective revolution against a powerful industry whose mindset was to sell products without evaluating its customers’ needs.
Whether or not they intended it, most of these then-young, idealistic advisors wound up founding a new profession. It developed its own body of knowledge, focused expertise and ethos that is loosely defined by the fiduciary concept.
Today, everywhere you look, younger advisors want to take the revolution through its next logical steps and remove all vestiges of the sales model.
They want to change their firms’ revenue model from AUM (which, to some of us, still looks an awful lot like trail commissions) to a fee structure that directly aligns the compensation charged with services and value. They want to embrace the newest technology, like automated online portfolio rebalancing, reporting and tax-loss harvesting. They are looking for permission to communicate with clients via Skype and social media.
QuoteTo understand what’s going on, have a drink or two with founding members of the profession.
And, (most importantly, I think) they want to expand their firms’ services beyond clients with significant assets and finally bring the benefits of financial planning to the rest of the populace.
Older advisors are resisting. The interesting question is: WHY?
To understand what’s going on, have a drink or two with founding members of the profession, and get them talking about the early days of their advisory businesses. Chances are, you’ll hear some version of this story:
I started my business on a leap of faith because I wanted to work solely on behalf of my clients — not for the firm and not for my own self-interests. I thought, because I personally knew the difference between the services and advice I would provide, versus the self-interested services and advice that brokers would provide, that people would flock to my door.
People didn’t flock to my door — at least, not immediately.
In fact, it took me years before I was even able to take a salary. For the first couple of years, my receptionist made more than I did. I honestly thought my new venture was going to go under.
This was followed by three to five more tough years where I barely eked out a living. I was terrified that I had made a terrible decision, that I would have wasted my money and almost a decade of my life on an idealistic whim.
And then, for reasons I still don’t totally understand, things turned around. My clients got richer and my annual fees went up accordingly. More people found their way to my door. I almost couldn’t handle all the business that was coming in, and I had to invest, and invest, and invest again, and that was scary.
But now I’m doing really well, the firm is doing well—and… Why are you asking me about this?
This is the Pioneer’s Story. I suspect it is a version of the tribulations that the first hardy American pioneers experienced when they migrated from the safety of the eastern cities to the open lands to the West, built their homes with their bare hands and hoped that the land would provide them with enough food to survive.
It’s easy for us to look back and imagine that, since everything turned out all right in the end, somehow those pioneers must have had confidence all along.
They didn’t, and neither did the forerunner of the independent financial planning profession, whose leap of faith was comparably brave.
EARLY YEARS OF TERROR
As we look at the dynamics of our profession today, it’s important to realize that those early years of terror left an invisible scar on the founders of today’s advisory firms.
They won’t talk about it, but they live in silent fear that they are one or two bad business decisions from being transported back to the pioneering days. It’s a place where the clients are unfamiliar, where they’re not sure of the viability of their business model, where change is coming at them fast but certainty is in desperately short supply.
QuoteThe hidden trauma is something that our profession’s younger associates are going to have to recognize.
This is the dynamic that causes many founding advisors to resist the rapid change demanded by the marketplace. It’s why they are reluctant to encourage younger advisors who see opportunity everywhere they look.
The hidden trauma in the Pioneer’s Story, the fear of risking it all and giving up hard-won comfort and certainty, is something our profession’s younger associates must recognize and accommodate if they’re going to drive their firms’ wagon train into the professional future.
CLEARING THE PATH
Accommodate how? Those reluctant founding advisors will respond more favorably to change if they see, clearly, that these recommendations will not uproot them. New pioneers should start with a business plan that lays out, in writing, the opportunities and the risks.
It would be helpful if:
1) The business plan clearly outlines how the opportunities visibly outweigh the risks; and
2) There is some reassurance that the firm won’t be plunged back into unprofitability in the interim.
I happen to think that the instinctive opposition to change is an irrational, emotional reaction, and unpleasant memories blocks advisors from considering even the most carefully-planned proposals.
If planners would recognize that the scars inflicted by the pioneering days are still affecting their decisions today, and see that they’re safely on the other side, they might be able to move forward. And if their younger cohorts would acknowledge how their mentors are still haunted, they’d be more likely to get the go-ahead to create the firms they’d want to inherit some years down the road.
Meanwhile, if those fears aren’t effectively addressed, then the younger advisors will be forced to go out on their own and build the profession of the future. Then they’ll get a chance to learn first-hand how hard it is to live like a pioneer.
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