Why Personal Financial Planning Can’t Be Commoditized

At the FPA Retreat this year, I heard a fair amount about the dangers of financial planning becoming a “commodity.” Apparently, many industry gurus today think that as competition in the advisory world heats up—particularly from the growing ranks of breakaway brokers—that financial planning will become more like, say, a barrel of oil, where one looks pretty much like any other. In this scenario, financial advice would become a volume game, with planners increasingly turning to technology to leverage the managing of larger and larger numbers of clients.

As you might expect, I take a somewhat different view. In fact, I believe the advisory world is moving in exactly the opposite direction. The number of financial advisors really hasn’t changed much in the past five years. Sure, the brokerage industry lost some folks around the market bottom a couple of years ago, but for the most part, those brokers who did leave the wirehouses became independent advisors, which is a net wash on the totals.

The real lesson from the migration of breakaway brokers isn’t in the numbers, it’s in the reason that brokers broke away: to better connect with their clients. They wanted to offer more personalized, more client-oriented service. In other words, they want to become less of a commodity, rather than just another Merrill Lynch or Morgan Stanley broker. It’s true that their firms were experiencing some business setbacks, but that only served to increase the brokers’ desire to have their own brand and their own relationships with clients.