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:
- financial planning
- tax management
- asset allocation
- investment vehicle selection
- 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.