© 2020 Arizent. All rights reserved.

The youth-led rebellion brewing in financial planning

I’m a bit horrified by what I hear from younger advisors today. They say they want to take the next step in their firm’s evolution. They say they want to bring financial planning to the blue ocean of younger, not-yet-wealthy individuals who were, ironically, the same type of people that their firm’s founder worked with in the early days. They want to implement robo advisor technology and change their company’s fee structure from the old AUM model to something that matches, with more precision, the fee charged for services.

But that’s not what I’m horrified by. I’m horrified by what happens when they propose these ideas to their firm’s founding planner. Too often the answer is a variation of: You can make all those changes after I retire.
I’ve actually challenged those senior planners: When will that be? The advisor will smile and say, I actually never plan to retire.

When I started out in the early 1980s, advisors were leading a glorious revolution against a stodgy industry. Their first big innovation was the idea that you should only sell the investment products and insurance coverages that people actually needed, based on a new kind of analysis called a financial plan. This was a dramatic departure from the typical sale, which proceeded from: “How much money do you have?”

Then, in the early 1990s, a small group began charging only fees for their services. Forward-thinking advisors moved beyond the venerable investment pyramid and began managing portfolios under the mathematical logic (borrowed from the pension consulting industry) of modern portfolio theory. Many advisors embraced the deeper client relationship called life planning. The professional advisors I grew up with were, for the most part, idealistic dynamos of change and innovation, who saw themselves as revolutionaries on behalf of their clients.

Of course the brokerage industry responded to these innovations, but it was kind of lame. The wirehouses introduced canned financial plans and fee-based wrap accounts with an annual 3% all-in fee structure. Life planning was boldly met with advertisements that made it sound as if brokerage representatives had been hired to look after the personal goals of their customers, rather than respond to the orders barked over a squawk box.

Of course the brokerage industry responded to these innovations, but it was kind of lame.

Today, the planning profession has simultaneously reached a time of rapid evolution and managerial stagnation.

Software is taking over many of the menial chores that once required hours, days or even weeks in the planning office, including automated online performance statements and rebalancing; automated downloading and reconciliation; online client intake forms; tools and self-discovery questionnaires to ready clients for the initial meeting; automated forms generators and electronic signatures for transferring assets and opening new accounts; custodial online tracking of check requests and money movement; single-sign-on for all your software; plus videoconferencing to save clients the trip to the office.

Collaborative planning and a pleasant onboarding process that explores life goals first and portfolios later is transforming the client experience. For the first time too, ordinary consumers are asking advisors if they’re willing to act as a fiduciary, thanks to the debate over the DoL rule.

"A generation of younger advisors is chafing with collective impatience."

While the older advisors who used to drive change are recoiling from all these potentially beneficial changes, a generation of younger advisors is chafing with collective impatience. They feel like they owe it to their generation to bring the many benefits of financial planning into their lives and they want to start their own prospecting process and build their own client base.

Founding advisors — people who themselves worked with their unwealthy peers back in the day — are complaining that their successors are simply not working hard enough to bring in the aging decumulators who have become their firms' sweet spot.

Perhaps more importantly, the founding generation of advisors somehow allowed their revolutionary spirit to ebb away in the daily effort to maximize profits, generate new business and handle the day-to-day managerial chores associated with a real business.

Financial planning is, at its core, an idealistic alternative to the brokerage industry’s founding idea that giving advice is about maximizing profits. But when you talk to many founding advisors today about what’s new in their business, you hear about performance metrics.

I’m going to predict that the financial planning profession is about to go through another revolution. Thousands of younger advisors, fed up with the restrictions at their sclerotic firms, more intent on changing the world than squeezing every last dollar out of their engagements, are going to go out on their own and harvest the next generation of clients long before they’ll reach the minimums set by many planning firms today.

These younger firms will struggle at first, just like the founding generation of financial planners did. But with better utilization of technology, they’ll be more efficient than the larger firms, and more receptive to client needs—and they’ll offer their services at a better price point.

"Older advisors who don’t want to change will get their wish: they’ll work until they drop with an increasingly aging cohort of clients whose heirs will take their inheritances to the younger, vibrant firms."

They will, in short, lead the profession’s second rebellion against the established status quo, just like the founders of the financial planning movement did, and the profession will once again evolve in ways that dramatically benefit both advisors and clients.

The older advisors who don’t want to change will get their wish: they’ll work until they drop with an increasingly aging cohort of clients whose heirs will take their inheritances to the younger, vibrant firms that are already helping them achieve their goals.

And I hope that after this next revolution has played itself out, we will have finally learned a lesson that many of my own generation somehow forgot: that dramatic change is not just necessary; it is inevitable and it is our small, still-growing profession’s ever-constant best friend in the competition with the larger brokerage industry.

For reprint and licensing requests for this article, click here.