January 30, 2023

Future of financial planning takes emphasis off the assets

The future of financial planning in whatever a post-COVID world looks like will likely leverage more of the technology advisers have come to lean on in 2020. But don’t expect the personal side of the business to fade away.

“I definitely don’t believe meeting in person or having an office is over,” said Alan Moore, chief executive and co-founder of the XY Planning Network.

“Larger firms got forced into adopting new technology and new security systems and getting management comfortable with everyone working from home, but it will be a minority of firms that close their offices,” Moore said during a panel discussion this week at Morningstar’s virtual annual conference.

“We will end up with a more flexible workforce, that allows us to widen our ability to serve more clients nationwide,” he added.

In a session designed to focus on the future of the financial advice industry, there was a natural emphasis on technology, particularly in the context of a world where virtual communications and interactions have become the norm.

“It’s important to have the in-person meetings, because that’s important for establishing the relationship, but virtual meetings can be more frequent and more convenient, leading to more touch points and greater relationships,” said Don Phillips, managing director at Morningstar.

And in a push-back on one aspect of technology, Cathy Curtis, chief executive of Curtis Financial Planning, challenged the notion that robo-advice platforms represent a renewed threat to traditional financial planning.

“I don’t believe hardly anything about financial planning can be robo-advised, because so much of the relationship is about the conversation,” she said. “One of the reasons I chose women as my niche is because women like to talk. They’re very open about they’re thinking, and they rarely talk about their portfolio.”

Phillips agreed that robos are “not something that threatens financial advice,” but said he does believe that “there will be a robo enhancement of financial planning.”

“There are huge groups of people who don’t have access to [traditional] financial planning,” he said.

Even if advisers embrace and adapt certain robo-platforms for clients who might not require more in-depth services, the panel agreed that it is the personal touch, even if it’s virtual for now, that provides the advice industry with its staying power.

Curtis said a key to standing out is a crowded space is developing a niche practice.

“I’m a true believer in niching; I focus on independent, single-bread-winner women,” she said. “Those are most of the prospects that come to me, and I don’t think I’d be where I am right now if I didn’t have a niche.”

Asked about the downside risk of a niche practice eliminating a market of potential clients, Curtis said the growth is in the niche.

“When I decided to shift my practice to focus on women my practice took off, and I’d advise any adviser coming into this business to focus on a niche,” she said. “It doesn’t hurt you at all.”

Moore agreed, saying, “Niche-focused firms are so targeted that when you talk to them, you immediately hire them.”

He added that as niche practitioners network, they often create a natural client referral system.

“Niche firms are referring clients to other niche-focused firms,” he said. “It’s the future of the industry, and it enables advisers to hold off the competition.”

Holding off the competition in the form of bargain-basement robo-platforms also means providing the kind of value that can keep advisory fees from compressing along with the rest of the financial services space.

One strategy is to move away from an emphasis on assets and portfolio management.

“It’s really hard to add value on the investment side today, but on the other hand, it’s really easy to add value on the tax and estate planning side,” Phillips said. “You can also add to that a focus on ESG investing and the values that people have.”

It is a sometimes delicate balance in a relationship that is typically pegged to client assets to keep clients focused on the bigger picture, Moore explained.

“I got introduced very early on that it’s not about money, it’s about what you’re trying to accomplish,” he said. “Our job is helping clients discover what they want out of life, and then how to use your finances to support that.”

Phillips said advisers who can illustrate their value beyond the investment portfolio will be most successful at fending off the pressure to lower fees or move away from asset-based pricing.

“I don’t really see the [asset-based] system changing, because I don’t think clients have a problem with it, and advisers like it,” he said. “But AUM doesn’t work in two areas: for very small investors, because it doesn’t make sense for the adviser, or for very large investors, because it doesn’t make sense for the client.”

In terms of fee compression at the advice level, Phillips said it will be difficult to avoid.

“I think downward pressure on fees is inevitable, but I don’t think it will play out like mutual fund fees,” he said. “With an adviser, it’s a very personal relationship, so I don’t think you’ll see fees collapse the way they have in the active management space.”

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