Since she started her practice, billing clients by the hour, on April Fool’s Day in 1998—“You’ve got to have a sense of humor to be self-employed,” she joked—Sheryl Garrett has seen a lot of advisors follow in her footsteps. Over 320 advisors across the United States are members of the Garrett Planning Network, offering fee-only advice on an hourly basis to middle-income clients.
Back then, though, her elders tried to convince her it was a mistake to not bill based on assets under management. In an interview with Investment Advisor, she recalled one person who said, “’somebody's going to get those commissions, so it might as well be you."
She had already been in the business for over a decade, though, and knew that the AUM model didn’t work for what she wanted to do. “I needed to be able to service clients in a way that made sense for me as a professional, as well as if I were the consumer of that financial advice. How would I want to receive advice?”
When she started her practice, she found a lot of lower-net-worth, middle-America investors “don't want to turn over their control of their portfolio management.”
“Most are average Americans who have the majority of their wealth in their retirement plans at work,” she said. “They needed somebody to turn to, to talk about, ‘Am I saving enough? What else should I be doing? Am I saving in the right places? What else?’"
She sees the proliferation of robo-advisors as a change for the better, as they will put pressure on prices and make financial advice more accessible to more clients. Price compression has already started “to a small extent, but not as much as I would have anticipated on the assets under management,” she said, “especially of passively managed model portfolios where you can go out and get them for 25 or 30 basis points. How in the world can a fiduciary who's no less skilled […] really beat that?”
There are limitations to expanding access to financial advice through a robo-advisor, though. “The majority of people don't want to just turn to a website or a calculator. That might solve one or part of their needs, but they do want to connect with a human being to say, ‘Did I do this right? Is this the right calculation? Am I thinking right?’”
Some firms are forgoing minimums, or establishing a division of their firm to serve smaller clients, she said. Others, like Schwab and Fidelity, are building their own robo-advisor offering or partnering with a robo-advisor to reach those lower-net-worth clients.
Garrett noted how quickly that’s happening. “These robo-advisors came out of nowhere in the last roughly five years. We're seeing major changes in a very short period of time.”
“I've been very proud of our industry for innovation using technology to help us to be able to serve more people appropriately and effectively,” she said.
Another big trend she’s seeing is a growing distinction between a holistic financial planner and an investment advisor or a financial advisor.
“Sometimes we use those terms completely interchangeably,” she said, but holistic planners “focus on planning first in a very holistic approach, rather than just getting to the end product. It's [about] the process and what we have to work with, instead of making recommendations for products, and that definitely used to be the name of the game.”
Garrett stressed that serving more clients isn’t about serving more wealthy clients. “They have choices out there,” she said. For firms in the Garrett Planning Network, serving clients is about “finding new and different ways to meet the needs of younger people, millennials, people just getting started, middle-income clients and folks with even more modest means than that.”
Over time, “fiduciary and competent, objective advice has become more and more accessible to middle America,” Garrett said. “I'm really elated to be part of that, and it's exciting to see so many changes happening very quickly, and new organizations and companies coming out to serve this mass underserved population.”