Isabella Fonseca

A new report from Aite Group, Financial Planning at the Core: Current and Future Developments, finds that wealth management firms are embracing goals-based financial planning technology rather than the previous practice of separating goals-based and cash-flow planning software. Even firms that have heretofore focused on investment management for their high-net-worth clients are now embracing financial planning.

While the financial planning software that advisors of all channels use ranges from off-the-shelf offerings to proprietary technology and hybrid approaches, the most successful firms are using planning software to engage the client right at the beginning of the relationship. That approach — focusing on the client experience — also pays dividends throughout the lifecycle of the advisor-client relationship, with the report concluding that “firms need to create experiences rather than products.”

The report argues that “starting early in the client acquisition process will increase the chances to involve the client in more complex financial conversations in the future.”

The report was based on interviews with executives of 14 major North American firms from January through May 2018, along with a survey in last year’s second quarter with 344 U.S. financial advisors across all the major channels.

Isabella Fonseca, author of the report and a senior member on Aite’s wealth management team, said that wealth management firms previously separated the goals-based and cash-flow planning approaches, “but now it’s definitely more a goal-based” approach that the most successful firms are following.

There’s another change, Fonseca said. While some wealth managers charge clients for writing a plan — especially the more complex ones — now “many firms are saying ‘We won’t charge,’ because writing and implementing the plans is seen as a “more iterative process.” That process is now “a part of the advisory process” and is longer considered a “one-off” but an “advisor-led process” over time.

Some firms have learned that they must educate their advisors to “do this properly; it’s not just a product that they’re selling” in formulating financial plans, she said, but rather the process of doing so has to be part of the “wealth management cycle.”

Has the rise of robo-advisors helped change the conversation between advisors and their clients and prospects? “Firms have felt a threat from the robos,” but in contrast with goals-based financial planning, robo advice is “very product oriented,” and in fact “could be considered short-term-goal oriented.” The robo approach, she said, “won’t be a 360-degree relationship with the advisor.”

She says that the “Morgan Stanleys of the world have been awakened, are now doing some type” of robo-advisor, but says the successful robo-advisors are “ones with partnerships at the larger firms.”

The report notes an increase in advisor-client collaboration through financial planning technology. Firms, she says, “are still trying to implement a simple financial planning process” offering online help to start building the plan, “then you go to the advisor to do more complex planning.”

So how can advisors differentiate themselves when there’s so much online financial planning help available for free?

“The support team is definitely important” in differentiating an advisor, a finding that Fonseca is exploring in more depth in the private banking world for a future Aite study.

What surprised Fonseca in writing the report, is that “everybody is doing something” in financial planning technology, and typically firms are using more than one tool — either “all vendor, proprietary or a mix” including “vendor provided with some customization.” In other words, there is no single financial planning tech tool that provides everything that advisors and their firms want.

When the executives in the survey were asked whether they planned to discard one or more of the multiple financial planning tools they used, “they said no,” Fonseca reports. That finding, she suggested, shows that firms would prefer to keep using multiple tools rather than settle for one tool with limitations.