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Key Trends That Could Transform Financial Planning

Feb 3rd 2016
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Ten years ago, few advisors could have envisioned how dramatically the personal financial planning landscape would change. In just one decade, the role of advisor has transformed from distant portfolio manager to collaborative life planner; the number of firms with more than $1 billion under management has grown from nearly zero to nearly 300; and breakthroughs in robo-technology and retirement planning research have revolutionized the profession.

But the furious pace of change in the financial planning sphere means innovation often eclipses preparedness, leaving the everyday advisor, already managing the day-to-day complexities of running a smaller firm, trapped in a frustrating and reactionary game of catch-up.

So, how can small-to-midtier advisory firms do more than simply acclimate themselves to change? How can they, in other words, position themselves to take advantage of the innovations and trends that are looming on the horizon?

Financial planning expert Bob Veres, editor of Inside Information, an online information service for financial planners, recently told an audience of advisors at the 2016 American Institute of CPAs (AICPA) Advanced Personal Financial Planning Conference that he believes there are 10 key trends that could transform the financial planning playing field over the next 10 years.

Advisors who want to stay ahead of the curve need to do more than simply be aware of these trends, Veres said. Forward-thinking advisors need to start developing and adopting new practice management and technology strategies to capitalize on the “blue ocean of opportunity” these new trends will bring. And they need to start today.

“The business landscape in the advisory profession has changed more in the last two years than in the previous 15,” Veres said.  “And I think the pace of change is accelerating. If you aren't out front on these changes, you'll be missing huge opportunities for success and growth.”

The following are seven of these trends Veres believes could “rock the financial planning world” over the next decade, as well as his tips on how to adapt your practice to stay ahead of the curve.

1.A return to our roots. Advisory firms were originally created by younger advisors whose clients were their unwealthy peers, but as those peers became wealthier, advisory firms' minimums rose and the middle-market consumers were locked out. Over the next 10 years, Veres believes younger, successor advisors will take on more marketing and business management roles and once again bring their peers into the fold.

Practice tip: Empower younger advisors to take on leadership roles and design the firm they want to inherit. Let them make it their mission to develop a model to service their millennial peers – profitably.

2.Development of a new Generation X/Y revenue model. In the dually registered world, financial planning is experiencing a shift from commissions to assets under management (AUM). The AUM model isn't broken for Generation X (or older) clients, Veres is quick to point out. But for younger generations, “retainers are ascendant.”

“AUM is broken for millennials,” Veres said. “Right now, they simply don't have the money to work under this model, and that will force the profession to move to retainers.”

Practice tip: Veres recommends having younger advisors work out a “hybrid revenue model” for their peers. Direct them to create a separate client tier and service model for this cohort, and consider utilizing an online platform that focuses the professional's time on planning.

“Currently, the XY Planning Network, which is an organization of advisors who work primarily with next-gen clients, offers a subscription model, like cable TV or your phone bill, which is auto-paid like those other expenses,” Veres said. “I suspect that this will be the most attractive model for people in the early accumulation stage, but as the relationship matures and people enter later life stages, when their financial lives become more complicated, they will be transitioned to a quarterly retainer billed out of the portfolio.”

3.The rise of interactive, collaborative service. Consumers will want to pay for financial planning services, but those services will have to transition from a didactic advisory model to interactive collaboration with clients. Future generations of clients will demand a thinking partner in their advisor and expect an experience of self-discovery and self-exploration when developing their portfolios.

Practice tip: Shift your planning service from analysis to a model that melds advice and life coaching to help your clients achieve their financial goals. Adopt a user-friendly, collaborative onboarding process (and the technology that entails) to create the initial financial plan. Forgo rigid performance statements. Instead, offer clients access to living tables, charts, graphs, and account balances, as well as an automatically updatable financial plan.

Veres also advises creating “a performance statement of the future” that lists client goals achieved quarterly, year-to-date, and since inception. Monitor your clients' progress, and coach and encourage them to reach their goals. Research shows people will often perform better for someone else, Veres said, than they will for themselves.

4.The end of geographic limitations. Technology and tech-centric, younger clients mean advisors are no longer limited by “brick and mortar” practices. This can be either a blessing (unlimited potential clients) or a curse (unlimited potential competition), Veres said, depending on how you ride the trend.

Practice tip: Your website is key. Start creating the “online environment of the future” – an interactive environment of self-discovery questionnaires, videos, blogs, and online financial planning and portfolio tools designed to appeal to the next generation of clients.

5.Transition from generalist advisor to niche specialist. Clients already increasingly want advisors who specialize in their demographic, their business, and their lifestyle goals. This trend will only intensify. To capitalize on this movement, advisors will need to develop a niche specialty to set themselves apart.

Practice tip: Identify your niche specialty from your existing client base. Look for clusters of clients who might benefit from specialized advice or services, such as doctors, attorneys, restaurateurs, and women entrepreneurs. Make an advisor in your office a specialist in that arena – someone who understands these clients' challenges, idioms, and cash-flow issues.

“I think it's as simple as writing down the names of your favorite clients and figuring out what they have in common. There will be one or two who can't really be grouped, but often, there will be four, five, or 10 who came from a particular source or share some interests or careers in common,” Veres said. “Most advisory firms get most of their clients from referrals that tend to come from a small number of sources, and there's a high probability that there are commonalities just by the nature of how they arrive in the advisor's office.”

Specialization, even with a less-wealthy niche, tends to raise profitability, Veres added. As you become more familiar with a particular group, marketing to them becomes easier. In turn, the cost of servicing this group of clients goes down, and that allows profitability to go up.

6.Communities of clients will be key. In the future, advisors will grow their practices by creating a community of clients around their target niche and developing educational and fun events geared to this target audience. This will accomplish two things:

  • It will allow the advisor team to become more familiar with the challenges this cohort of clients face.
  • It will allow the firm to market directly to its niche in a way that is more effective than the traditional seminar approach.

Practice tip: Develop a community of clients by inviting similar clients from your target niche to serve on an advisory board. Find out what kind of issues they'd like to learn about, what types of speakers they'd like to hear from, and what kinds of outings would draw them together. Then host these events.

At first, only a small percentage of the community will be clients, but over time, they will recognize the value you're providing to the members who are clients, Veres said. Also, remember these events are not intended to generate leads or new clients; they are intended to learn how to better serve your existing clients, and, if appropriate, mention the firm's work on their behalf.

There are no sales efforts, Veres said. Rather, the events are long-term investments in visibility among the firm's target clients.

“I think most advisory firms would envy their repeated positive exposure and interaction with a desired group of prospects,” he added.

7.The maturation of robo-ACATS technology. The advent of robo-technology and self-ACATing have already turned the profession on its head, and this trend will only intensify as the implications of this technology shake out over the next 10 years.

Some of those implications? Advisors should “no longer fear repapering,” Veres said. Self-ACATing, pioneered by the robo-advisors, allows prospects to go to your website, gain access to their current account information, and fill out the paperwork in seconds instead of days.

“This will create the biggest opportunity to gain market share since the invention of the AUM model in the 1990s,” Veres said. And it may also offer a solution to the profession's looming talent shortage, he added.

Why? The technology makes it easier for brokers to move their books of business. Veres predicts this could open the door for cautious breakaway brokers to convert to fiduciary.

“There will be a lot less fear for brokers who want to move from the dark side to the light side,” Veres told the audience at the AICPA conference. “I think we can expect to see an exodus of brokers wanting to come into the [advisor] space.”

Practice tip: Make sure your firm is ready to greet these broker converts with open arms. Experiment with robo-ACATS technology, recruit one or two brokers (and their clients), and help them acclimate to the fiduciary culture and client-first mindset.

How can you make your firm attractive to these brokers? Veres predicts the profession will likely have to work out an industry-standard offer, although he doesn't yet know what that might look like. To lure top talent, firms will also have to offer reasonable compensation, a collaborative workplace, and future partnership prospects.

“But most importantly, I think it will help if there are other former brokers working at the firm who can sit down with the broker who is thinking about moving,” Veres said. “That means early adoption: bringing on one or two brokers to start with and getting their input on what that attractive environment would look like. I think the best recruiters will be people who were, themselves, part of the brokerage world, who can talk about how the grass is greener on their new side of the fence.”

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