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October 07, 2015 at 07:00 AM
Denver financial planner and blogger Jim Schwartz sent me (and others) a thoughtful email the other day, under the heading: “Bob Clark’s Blemished Premise: AUM Compensation More Aligned with Client’s Interests.” In it, he raises a number of important points for advisors trying to sort out whether to continue charging AUM fees or switch to flat retainer fees.
To start, Jim takes issue with a statement from my August 12 blog (Financial Planning: Great Tool, Bad Product): “Financial planning may be what people need, but more money is what they want; and what they will pay for.”
In response, I think he captures the sentiments of many of today’s retainer fee advocates when he writes: “If personal financial planning is what is needed AND is what is sold, but asset management (accumulation, preservation, distribution etc.) is what is paid for, then this ‘personal financial planning’ is merely a Trojan horse for asset under management compensation… Thus, in effect, AUM-compensated personal financial planning is the wolf (asset management) in sheep’s (financial planning) clothing; a bait and switch complicity between the asset manager in planner clothing and the client who says they want personal financial planning but really will only pay for asset management.”
Seems to me we need a reality check here. I think we can safely say that nobody—but nobody—is “selling” financial planning without asset management. As I understand it, firms that are switching to flat retainer fees are basing those fees on what they used to charge for AUM—and are continuing to manage those assets. I haven’t heard of any financial planners doing only financial plans, and asking their client to go to someone else to have their assets managed. Even the Garrett Planning Network folks—who charge an hourly fee for financial plans—include advice to their clients about how to invest and allocate their portfolios.
The point here is that Jim’s (and others’) premise that “financial planning” is “sold,” is an illusion. It may be what people need, but it’s surely not what they’re willing to pay for.
