Morgan Stanley recently announced that they will start paying their advisors extra money for each financial plan they create. The reason for this is fairly simple: they want to steal your clients. By some estimates, only 20 percent of advisors provide financial planning services. But, according to Joel Bruckenstein, CFP, president of Technology Tools for Today (T3), “Advisors who aren’t offering any financial planning services are already late to the game. Basic financial planning services have become table stakes for acquiring and retaining clients.”
As investment advice becomes more commoditized, whether by competition from robo-advisors or just the general race towards zero in investment fees, it is critical that advisors add more value to their clients. Every client is investing with some future purpose in mind. It could be to fund retirement, leave a legacy or even some nearer-term goals, such as paying for a college or buying a boat. Helping a client or prospective client create a roadmap to success is high value activity that can attract and retain clients, as well as abate fee pressure. In fact, without a financial plan, your clients may be at risk of not achieving their goals. If that is the case, then they will likely leave for another advisor who can intuitively demonstrate (1) that it is unlikely that what you are currently doing is going to work for them and (2) that there is a plan that gets them to their goals.
“A key aspect of the financial planning process is ‘goal discovery’—to figure out what’s even possible for the client to pursue in the first place,” wrote Michael Kitces in his Nerd’s Eye View blog. “In this context, the financial plan becomes a conversational piece about goals—starting with some baseline goal the client has stated, and then illustrating what financial planning goals are actually possible, and which are not, in turn inviting additional what-if scenarios as the client evaluates the prospective trade-offs to decide which path to pursue.”
A host of financial planning practitioners added to the Kitces blog post saying, essentially, that advisor-led, personal financial planning—just the process itself, which solidifies trust—was essential for advisors who want to survive in today’s commoditized robo-world. The general consensus from financial advisors who are thriving is that providing investment management is not enough.
Advisors need to be able to talk to their clients about their lifestyle choices leading to—and during—their retirement. Advice about savings and spending habits, and how those behaviors impact savings and retirement goals, is what people expect from their trusted advisors. If advisors don’t provide those services, they may find their clients leaving them for competitors who do.
So What’s The Hold Up?
Given the importance of goals-based financial planning, why aren’t more advisors offering the service? It usually boils down to one or more of the following reasons:
Many advisors see goals-based financial planning as very complicated/expensive. Goals-based financial planning is usually done with the aid of fairly complex and robust software programs. These programs produce detailed financial plans taking into account many possible aspects of the future.
However, these detailed financial plans also come with costs, namely they can be complex to operate, require a fair amount of training, require a fairly lengthy client interview and can come with a high price tag. While they may be useful for retaining clients and adding value, it is often not useful for prospecting since the amount of time required of a prospect is generally in excess of what they are willing to commit. In short, they don’t feel the rewards are worth the time and money invested.
“Financial planning is such a broad discipline that it often overwhelms,” said Tim Mauer, CFP, in his column for Forbes.com. “I confess that I have contributed to this inevitable complexity by writing financial plans that were scores of pages long. They explained recommendations numbering in the thirties.”