Michael Kitces, research director at Pinnacle Advisory Group, has blogged that monthly retainers could be the model of the future in financial planning because the potential for a full fiduciary standard undercuts the current product-based transactional model that serves much of the middle market.
Some firms, such as Gen Y Planning in Minneapolis, have opted for a monthly subscription model. Sophia Bera, 29, started Gen Y Planning last year specifically to serve that particular demographic. “Gen Y is comfortable with the notion of monthly subscriptions because that’s how they pay for gym memberships, cell phones and their Netflix accounts,” she says.
Bera serves roughly a dozen clients around the country that she meets with via e-mail and Skype. She charges them an initial planning fee that varies based on the complexity of a client’s situation, plus a monthly subscription fee. She declined to give specific numbers because she says she’s in the process of changing the fee amounts.
“The monthly dues give them unlimited e-mail support from me, and we do check-ins every six months over Skype,” Bera says. She notes the monthly fee makes it easier for clients to get needed financial advice, and they can pay for it with PayPal or through an automatic bill-pay from their bank account.
“It’s about helping people incorporate financial planning into their lives,” she says.
These new models are desirable, if not needed, but the AUM model will be a tough habit to break, particularly for advisors with well-heeled clients.
The AUM model for pricing is a way for advisor firms to gain economic leverage when the markets go up, which historically they do, says Mark Tibergien. “Plus,” he adds, “if you go to a negotiated fee approach, you’ll have to negotiate with clients all of the time, and that’s a hard conversation to have.”
Filling The Ranks
Speculating about the future can be fun, but an industry without enough employees won’t have much of a future. The advisor profession’s existential conundrum is that it’s a graying industry that’s having a hard time attracting new blood. Increasing numbers of colleges and universities offer financial planning programs, but some observers say it’s not enough.
Caleb Brown, a partner at New Planner Recruiting LLC, believes the process for students majoring in financial planning at some universities is flawed. “I get the sense from colleges and universities that financial planning programs are seen as the red-headed stepchild in academia circles,” he says. “We need to increase the visibility of financial planning on college campuses.”
Brown’s company specializes in placing students and career-changers enrolled in CFP Board-registered programs, as well as CFP-certified practitioners with less than five years’ experience, with financial planning firms. “There should be people lining up at the door to get into this industry and position themselves to take over these firms, but I’m not seeing this at the level I’d like to,” he continues. “On the current path, I don’t think there will be enough advisors to serve future clients unless someone figures out how to provide financial planning for the masses. But people who need advice typically want it tailored to their situation. That means people will still want tailored financial advice, but there might not be an advisor to work with them.”