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Do We Really Want to Separate Financial Planning From Asset Management?

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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.

What they are willing to pay for is asset management: which is why virtually every financial planner in the country offers asset management advice. Sure, financial planners rightly point out clients’ goals will be more readily attained through a long-term plan: one that comprehensively addresses all their financial issues. But the demand by clients for asset management isn’t the result of “ignorance” about personal finance: it’s based on a clear understanding that for the vast majority (dare I say “all”) of independent advisory clients, the only way they are going to reach their financial goals is by prudently investing their current and future financial assets. 

Schwartz seems to completely miss this point when he writes:  “The base premise & promise of personal financial planning is the hoped for alignment of client resources with their desired goals… …In contrast to [that] premise and promise, the underlying assumption of asset management is for accumulation, preservation and or distribution of assets.” 

There’s no “contrast” here: without the “accumulation, preservation and or distribution of assets,” most folks’ financial plans would be really short—and very disappointing. In fact, the only demographic group who can align their “resources with their desired goals” without having their assets managed are the very rich (and even they pay for asset management).

I have to admit, I’m quite baffled by Jim’s, and others’, attempts to separate financial planning from asset management, or as he puts it “managing goals or managing assets.”  To me, it’s like trying to sell a car without an engine. Yes, they are very different things, requiring very different skills to build and maintain. But they are intimately related, and one isn’t going very far without the other. 


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