Is Financial Planning Becoming Commoditized? Pt. 2, the Outlook

Notwithstanding the fact that financial planning itself isn’t being commoditized, though, it’s important to realize that many other services provided by financial planners or as a part of the financial planning process most definitely are becoming commoditized. For instance, as noted earlier, the execution of trading to the implementation of index portfolios is becoming rapidly commoditized; while few advisors still provide basic stockbroker execution services, this still puts a great deal of pressure on those advisors who provide little more than the implementation of passive, strategic portfolios, which can now be done for almost nothing from a wide range of online providers at an ultralow cost. 

Similarly, providing basic financial planning projections for retirement or other goals, accounting for a client’s net worth and cash flow, or providing information on performance reporting, is also under commoditization pressure from a wide range of online computer- or tablet-based tools that are providing such information at little charge or entirely for free, from the RetireLogix financial planning “app” to the services of Mint.com to the more in-depth reporting options becoming available thanks to a wide range of “account aggregation” tools available for consumers. The end result: to say the least, there’s no longer very much value in just gathering information and being able to report it back to clients the way that perhaps there once was.

Nonetheless, this doesn’t mean that financial planning itself—the integration of these various points of financial data, client needs and goals, planner wisdom and advice, and subsequent implementation—are being commoditized, even though technology is certainly impacting many of the component parts. To the contrary, the opportunity is that as technology permeates the financial planning world, it will improve the planning experience and augment planners, not replace them. Ultimately, the value of financial planning is about changing a client’s behavior, and as human beings we simply don’t feel accountable to change from a computerized, commoditized service the way we do to another human being.

On the other hand, the pressure is on for those who are masquerading as financial advisors without really providing valuable financial planning advice. If the goal is to get paid for just gathering a client’s financial information, providing financial planning projections, executing investments and implementing passive portfolios, etc., the threat of robo-advisors is real, and business will not be sustainable as commoditization decreases the profitability of those services down to nothing. 

Yet, ironically, in the end the reality is that as we enter the digital age, financial planning is not only not being commoditized in a manner that would make financial planners irrelevant, but the reality may be that it’s about to get even more competitive with more financial planners than ever, as an increasing number of advisors realize they must step up to provide a deeper, higher quality of financial planning advice and services for their businesses to survive and thrive.