Three years ago, two members and astute observers of the financial services industry detected a growing underserved, indeed unserved, market — not of clients, but of financial advisors. Wasting no time, Alan Moore and Michael Kitces promptly created a one-stop shop to serve them.
In an interview with ThinkAdvisor, Moore — co-founder of XY Planning Network, which helps next-gen advisors set up firms targeting clients in their 20s, 30s and 40s — discusses his hope to turn financial planning from “a sales platform” into “a helping profession.”
The outspoken Moore, a certified financial planner who just turned 30, surely isn’t overlooking veteran advisors keen on serving millennials and Gens X and Y. His company helps such FAs create “a firm within a firm” using the service model it built especially for younger clients.
Moore worked as a financial planner at two different Midwest firms for a total of 18 months before opening his own RIA, Serenity Financial Consulting, in 2012. Soon he found himself bombarded with phone calls from other young planners with questions on how to start and set up a firm, obtain clients and so on. That led him and Kitces — who, separately, had been also noodling how to help next-gen FAs — to co-found XY Planning in 2014.
The network has 540 advisors, 200 added this year. Half the firms were startups with no AUM. Most members serve clients with household income of $70,000 to $80,000.
Members are charged $397 a month, and XY has no ownership in their practices. Requirements: Planners must be fee-only and offer financial planning on a monthly subscription basis, though they can charge an hourly fee or onetime project fees too. All planners must be available to work with clients virtually; i.e., online.
In focusing on the back end, XY Planning helps FAs set up their RIAs, handles compliance and functions as a marketing coach. Further, it provides discounts on technology and has a special relationship with TD Ameritrade to custody assets, but members are free to sign with the custodian of their choice.
Moore and writer-editor Kitces, a partner of Pinnacle Advisory Group, met seven years ago via Twitter. After working together on a few projects, they teamed up to help young advisors start, run and grow their firms. A year after opening XY — when it had 100 members — Moore sold his RIA to Abacus Wealth Partners.
An offshoot of XY Planning is AdvicePay, a payment processing company for fee-for-service billing. It just completed a $500,000 first round of funding, mostly from financial advisors. Used now by XY members only, the system will be available for all advisors in January 2018, says Moore, AdvicePay CEO.
ThinkAdvisor recently chatted with the South Atlanta-bred entrepreneur, on the phone from his office in Bozeman, Montana. A frequent speaker at industry meetings, he hosts XYPN Radio, a large podcast aimed at independent FAs. He went 100% virtual six months after starting Serenity, enabling him to move to Bozeman for convenient skiing. (That was the plan.) Here are highlights of our interview:
THINKADVISOR: What’s the freshest idea for financial services XY Planning Network has brought to the table?
ALAN MOORE: Giving younger advisors permission to work with people their own age. It’s amusing to me that this is groundbreaking, but it is because the industry has been so focused on pre-retirees and retirees. When I was an advisor, I was told, “You can’t work with people in their 20s, 30s and 40s. They don’t pay for financial planning — they don’t have any money. The only way to serve them is to sell them insurance.”
Most rookies at wirehouses wash out — but you’re saying they’re not washed up?
I hope one of XY Planning Network’s effects is exposing more young people, particularly rookies — who have a 90% fall-out rate — to what real financial planning is and does. The world of “financial advice” isn’t financial advice at all; it’s not about helping people. It’s about selling products, meeting quotas and sales levels, and being sure you’re selling one insurance over another. What we’re doing is spreading the message that there’s another way.
But won’t next-gens who join your network eventually become FAs similar to traditional advisors?
Yes, in 20 to 30 years, they’ll probably grow with their clients and morph into serving wealthier clients because they’ll turn their clients into wealthy people. But the center of the relationship will be different.
Unlike today, retirement won’t be the lens through which our planners view the world of financial planning: Rather, advice will be at the center. That will have a dramatic impact on how our advisors interact with clients. They’ll have amazing, deep relationships all about planning needs.
You say on your web site, “My job is to fix what I see as broken” in the industry. What’s broken?
I hate to say it, but I don’t really like the financial planning industry. It makes me very sad to see that it still has an old-school mentality: It’s all about product sales. I was at a conference yesterday where a company was giving a presentation on how to sell whole life insurance to people in their 30s. It was total BS. They were talking to advisors, and everyone was rolling their eyes. So we’ve not yet killed that off.
Why, then, do you stay in the industry?
I truly believe in the profession of giving financial advice. We want to educate the industry and consumers to move this into a helping profession instead of a sales platform.
By doing what?
If I could wave my magic wand, I’d ban insurance commissions and investment commissions across the board in the U.S. and just have flat fees — and watch as the industry cleans up. I’d require everybody who calls themselves a financial advisor to be a fiduciary because that’s the right way to do business. Consumers think we’re all fiduciaries, anyway, though only a handful of us are. That’s another sad piece.
You and Michael Kitces are partners in XY. He’s “a quintessential Gen X” and you’re “a classic Gen Y,” you say. Why does that make a good partnership?
Michael wears suits and ties, and I wear t-shirts and jeans. He’s more the cynic. He didn’t grow up with technology. He’s the “Director of Slowing Things Down”; I’m the “Director of Speeding Things Up”! That very much describes our working relationship. Michael is very good at filtering through the details and being sure we’re making good decisions. I’m the one who, once we decide [on something], says, let’s get moving.
Social media seems to be the center of the universe for next-gens. How do advisors in your network use it to communicate with prospects and clients?
It’s very fruitful if used correctly, but I don’t believe that social media will be the cornerstone of advisors’ future marketing plans. I think it’s way overblown.
How, then, should it be used?
We’re seeing that for us, social media is a very, very minimal part of our success from a marketing standpoint. Engagement is coming through email marketing more than social media marketing. Social media isn’t where you go to sell; social media is where you go to have conversations. It’s part of a multi-pronged marketing approach.
What type of content should advisors post on social media?
You need to be blogging, podcasting, creating videos — sharing your expertise with the world and establishing yourself as the expert on a particular topic or with a certain type of client. Social media is a way of distributing that content and engaging with listeners or readers. It helps you cultivate relationships.
Why is email marketing so effective?
Emails are digital real estate. Once we have someone’s email address, we can track who was on our website. We use email as a way of following up and staying in touch. You can get very targeted with it. Email keeps you top-of-mind. It’s a very valuable marketing tool that advisors need to be focused on.
You also work with traditional — that is, veteran — FAs who want to employ your business model in their existing practice. Does that mean they can become part of your network?
Yes. We call it “firm within a firm.” Large, successful firms are trying to solve the problem of how to bring in younger clients and how to engage the children of existing clients. You can build our service model — which was [designed] specifically for next-gen clients — inside your existing firm and use different technology, different marketing, even a different brand name and different advisors that, perhaps, run the program virtually.
Why is it necessary to have a different service model?
Millennials won’t buy the model that was built for their grandparents. That’s what advisory firms have tried to do: sell to millennials a service model built for older, wealthy clients. That doesn’t work.
Have you attracted many female advisors to your network?
We’re about 30% female right now, which is high when compared with the industry, which is very low [in female FAs]. The women planners in our network are firm owners. I want to see financial planning represent all Americans. It’s [still] very white, very male and very old. We’re trying to figure out how to recruit more women and more people of color into financial planning.
Where do robo-advisors fit in?
I’m anti the term “robo-advisor.” I like “robo-allocator.”
Robos got way too much hype, way too much funding; and some of them will ultimately fall just because they can’t keep up valuations. I’ve yet to meet an advisor who lost a client to a robo.
Have robos had any positive impact?
They’ve educated the masses on the value of working with someone in financial advice! They’re engaging people in their finances, which is very important because money is something that we, as a society, haven’t talked about. The real disruption that the robo-allocators are having is on RIAs.
You’ve in fact partnered with a robo that’s available to members who choose to sign up for it.
Yes, a robo system inside our TAMP [turnkey asset management program] that was built specifically to help our advisors better serve young clients with smaller account balances.
You’re probably not thrilled about the Labor Department’s fiduciary-standard rule delay.
Even if the rule doesn’t go down in flames, the president has the power to take the bite out of any regulation. We can have all the regulation in the world, but if the [government] doesn’t fund the regulators to actually do something about it, it doesn’t matter.
Do you believe in free-market capitalism?
Yes. I truly believe that markets [can] work themselves out. The problem is they can do that only if people don’t lie. We’ve allowed broker-dealers — the product sales industry — to hijack terminology, such as “financial advisor.” So people can call themselves a financial advisor but not be one. All they’re doing is selling the products they’re paid to sell. It’s like allowing a bunch of pharmaceutical sales reps to call themselves doctors and prescribe medicine.
What’s the remedy for the financial services industry?
There needs to be government interception and more clearly defined terms. Again, if I could wave my magic wand, we’d all be fiduciaries, if for no reason other than consumers think we’re fiduciaries because we’ve been telling them we’re “advisors” — but we’re not.
At XY’s conference this past August, you issued a Code of Conduct that banned sexual harassment and gender, age, ethnic and other forms of discrimination. Violators would be ejected from the conference and those held in the future. How serious are you, especially about the sexual harassment aspect?
We’re dead serious. [Infractions] range from touching inappropriately to getting a girl drunk at Happy Hour. I’ve seen it all [in the past], and there’s no way we're going to stand for it. We said that our conference won’t be known for that. Talk to any female in financial planning, and they all have a story about men’s inappropriate behavior at conferences. I’m not saying you can’t flirt or find love in a professional atmosphere — just that you can’t cross the line.
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