For much of the last two years, the advisory business has been obsessed with fee compression, robo-advisor platforms, custodians entering the advice space and the like. Concerns among advisors revolve around two central themes.

The first is that it will be increasingly difficult to earn a living charging 1% for asset management unless your firm provides a host of other services under the umbrella of comprehensive financial planning. Even that may be insufficient, which is why more firms are breaking out the different component services wrapped inside the fee.

The second theme questions whether as many potential clients want comprehensive planning as the profession hopes. There is little doubt most Americans, even those who are financially literate and sophisticated, need holistic planning.

But doing comprehensive planning right requires advisors and their clients to wrestle with difficult personal issues that many folks would rather sweep under the rug. Therein lies a problem for the profession that may ultimately dwarf robo-advice.

For a client with a few million in assets to ultimately receive the value from an advisor charging 90 or 100 basis points on those assets, she or he is going to have to open up about major life issues. Most advisors I know can provide great value and justify their fees for clients willing to be candid.

Where the problem arises is with prospects who don’t want to share their problems. I raise this issue because I’ve talked with several people approaching retirement in the last year who’ve said exactly this. Incongruous though it may seem, they want their financial problems solved, and though they may not admit it, they don’t want to face up to other issues.

Robo-advisors certainly won’t cut the mustard for them. I strongly doubt an advisor who works for Vanguard or Schwab would be the answer either.
Advisors are lucky in that they can be selective as they face a wave of baby boomers needing retirement advice in the next decade. It’s already starting, but the pace is going to accelerate and they are going to see more prospects like those described above.

I don’t pretend to have the answer about whether these prospects should become clients. Many would say no.

Should a physician turn away clients who refuse to give up cigarettes and fast food? Bill Gates and Donald Trump love their Big Macs and I doubt many advisors would turn them away as clients. For doctors, it might be a different story.

Have a great 2017!


Evan Simonoff

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