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Financial Planning > College Planning

4 Areas Advisors Must Improve to Make Financial Planning Their Differentiator

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There are some absolutes in the world: The sky is blue. At some point your spouse won’t get along with your mother, which puts you in an awkward position. In the wealth management industry, financial planning is moving to the center of the advisor’s value proposition.

Not every advisor in the future will put financial planning at the center of his or her value proposition, but many of those who remain relevant will do so. Why? I believe advisors can provide value to clients in five key areas:

  1. financial planning
  2. tax management
  3. asset allocation
  4. investment vehicle selection
  5. systematic rebalancing. 

In the view of many end investors, two of these areas (and maybe three) are being commoditized in a major way, but financial planning cannot really be commoditized because true financial planning is rooted deeply in the human touch needed to make a plan come to life. It’s steering the future of the wealth management industry. If you don’t believe me, just look at the statistics:

  • 78% of advisors surveyed say their clients choose them first and foremost for their planning capabilities.1  There’s no way that number was anywhere near that high even five years ago.
  • Investors from Generations X & Y say their top unmet need is helping to plan for cash flow for emergencies.
  • For Baby Boomers, 58% said developing a financial plan that brings their entire financial life together was their most unmet need.2

No matter what demographic you are targeting, financial planning is at the center of the value investors expect. But as I talk with financial advisors, many are struggling to meet these expectations. Why?

The first obvious question is: What is financial planning in the first place? The end consumer has a difficult time evaluating it, because there’s no standard definition or output the industry uses. 

Some say financial planning is simple. I believe the future of advice is goal-based, and ties to a dynamic financial plan that engages the end investor, much like today’s end investors are engaged in understanding the performance of their portfolios. Ten years from now we will wake up and the best advisors won’t be talking about “portfolio performance”; rather, they will be talking “plan performance.” 

Don’t get me wrong. The money management process is absolutely paramount to end investors reaching their goals, and a plan won’t work if the assets aren’t managed effectively. However, in the future, the money management function will not be utilized for the actual output; instead, it will be used toward the foundation of the output—a goals-based financial plan.

What’s stopping advisors from offering effective goal-based planning? I have found there are usually four areas where these advisors need to improve:

  1. Helping Clients Envision the Future 
    Many advisors don’t know how to start a goals-based conversation with their clients to help bring clarity to the process. Many clients may not even have a realistic picture of their end goals. The key is to get clients to envision the future—not necessarily vineyards and second homes, but what really matters, such as their ability to help fund a grandchild’s education, or to have enough money saved for unanticipated medical expenses. 
  2. Motivating Disengaged Spouses
    For clients who are married, the vision really needs to be about collective goals. When spouses aren’t engaged, it’s tough to determine what family goals should be.
  3. Identifying the Right Number of Goals
    Many advisors don’t know how many goals make sense. Is it two, or five, or 10?  As the goals increase, the plan complexity increases. I would recommend keeping it simple to start. These are the primary fundamental goals most people have:  fund children’s college, retire, and pay off a mortgage. Stretch goals are fine, but make them “nice-to-haves,” and don’t let them cloud the primary ones.
  4. Helping Clients Navigate Emotional Tradeoffs
    It’s difficult for end investors to understand tradeoffs, and as a result, this is the area where the advisor provides immense value. Even the best financial planning software packages can’t help clients deal with the emotions of determining whether they should, for example, risk their retirement goals to fund college savings when their retirement security may be in jeopardy.

Financial planning’s move to the center of the advisor’s value proposition, and the new technology tools entering the market to help advisors in this regard, offer tremendous opportunities. For the first time, you can tie together the idea of “staying the course” in a way that just makes sense to the end investor.  When the market crashes, the general advisor recommendation is to stay the course, but from an emotional perspective, this can be difficult for end investors to fully understand—and this is where advisors can demonstrate more value. 

I get this question all the time: “What’s the definition of financial planning or financial coaching?”

The simple answer is: “Helping clients avoid the emotions associated with volatile situations, because reaching their goals require that they stay invested over the long term.” 

Staying the course is an easy thing to say, but to the end investor, it’s difficult to understand why, particularly during times when it seems like being out of the market is the right call. The advisor’s ability to show how an investment decision, such as moving to cash, affects a very specific, agreed-upon goal tied to a life outcome is critical for helping investors take the emotion out of making investment decisions during difficult times.

There is no doubt that many advisors are feeling the pressures brought on by the commoditization of investment advice. The most successful advisors will counter this by clearly articulating and demonstrating the value they provide as financial planning, coaching and deeper relationships become the advisor of the future’s value proposition.

1Source:  Cerulli Advisor Metrics 2015.

2Aite Group Online Survey Q4 2013


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