This past fall, I had the privilege of speaking once again at my favorite conference in the world—Back2Y—hosted by Paul Armson in Birmingham, England. This conference draws life-focused advisors from around the world seeking to deliver the highest order of value and the highest level of integrity to their client relationships.

Two of the speakers at the event, Bob Veres and André Novaes, shared commentaries and stories about the future of the financial planning profession that we would all do well to ponder.

Veres is a leading journalist in the financial planning profession, whom I’m guessing most of you are familiar with. Novaes is the founder of LifeFP, a unique financial planning enterprise based in Brazil that is turning the traditional models of compensation on their heads. I suspect you’ll be hearing much more from and about Novaes in the future.

The thoughts shared by these two leaders point to the glaring omission in the financial planning universe—the underserved middle class. Veres brought down the gavel on this matter with the statement, “I know of no other profession that won’t serve 90% of the population. We can’t be that profession.”

The omission is traceable, in my mind, to two factors inextricably knotted together: 1) advisors’ compensation from assets under management; and 2) advisor value propositions that are vacuous and vaporous. If I am a planner with the AUM compensation model, I cannot afford to serve your interests unless you have sufficient investable resources to compensate me for my efforts. In other words, I can only help you increase your wealth if you already have wealth!

What would you think of physicians who would only see you if you had already tested healthy? Or lawyers who would only represent you if you were already proved inculpable?

I may be wrong, but it seems to me I’m seeing more and more people in the middle class walking around with bad teeth, and I suspect it’s because American dentistry has priced itself out of much of the market. The rise of “dental tourism” in Mexico, Costa Rica, Vietnam, etc. speaks to this phenomenon. Is financial planning on the same trajectory?

I’m not saying you have to cater to the middle class, but I am saying a great cohort must step up for financial planning to be taken seriously as a “profession” instead of a luxury service for the already entitled. The bald truth is that instead of catering to the most in need, this profession caters to those most able to pay.

Compensation Sensation
We are in the early stages of a tectonic shift in compensation, however, moving toward a more inclusive model. Years ago, we witnessed a similar shift away from commission-based payment (a trend that’s still in progress) toward one based on AUM. At the time, everyone thought this was the magic bullet to solve all compensation complaints. They were shortsighted in their enthusiasm.

I once found myself at a national conference sitting on a panel discussing the compensation shift. Most of the panel were talking up the virtue of the AUM model. I presented them with the following analogy:

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