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Financial Planning > Tax Planning

In a World of Free Products, Financial Planning Must Change

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A great debate is currently being waged over the future of financial advice. On one side of the argument are the historians saying, “We’ve seen this before.” From historians’ point of view, every decade or so, new business entrants swoop in to guzzle down a bunch of the wealth management pie by providing services for free or near free.

Historians remind us of two previous “failed” attempts to eliminate the financial advice business: discount brokerages and no-load mutual funds.  Schwab and e*Trade the primary villains of the first, Vanguard the unquestioned rabble-rouser of the second. To historians, the rise of fintech is of the same ilk: destined to gain a little market share, a lot of media attention, and all the while, financial advisors will continue to provide the “real” value by working with people to solve real problems of wealth accumulation and distribution. Historians are immune (and generally scoff at) the infamous phrase: “This time it’s different.” To them, it never is.

On the other end of the spectrum are the revolutionaries. Watching the incredible accumulation of venture capital, finserv inroads by the FAANGs (Facebook, Amazon, Apple, Netflix and Google) and the vertical integration of old players in the field (Vanguard, once again, rears its head here) they claim, “the world has changed.”

With a wealth of data to prove their case, the revolutionaries comfortably assert that this time is, in fact, different. Not because the robo-advisors — a term quickly falling out of vogue — are so powerful, but because digital direct-to-consumer financial advice is being offered across so many channels with so many variations and so many financial resources behind it that cannot be ignored.

News of the Free

Entering into this dialogue comes the latest news  from Wealthfront: free financial plans. By year end, the digital advice firm is set to offer retirement planning software to all individuals in the United States at no cost. This follows news of an integration with Intuit’s suite of direct-to-consumer products: Turbo Tax and Mint.

Wealthfront intends to win the race to free-for- expanded services, though they will not be alone. Infamous aggregator of Millennial investors, Acorns, recently announced a $50 million funding infusion from Blackrock, primarily to be used in expanding its marketing driven freemium options.

But in today’s highly competitive marketplace of digital services, free advice may not be enough. Fidelity officially won the Race to Zero, announcing  its free (zero expense ratio) index funds available with zero account fees and zero trading costs for retail accounts. The infamous fintech rabble-rouser, Robinhood, just proclaimed it will self-custody in a financially stabilizing move to support its no-trade-fee trading platform.

News of free services is everywhere. And while the majority of financial advisors (many of them on the “historian” end of the belief spectrum) will doubt the effectiveness of these services in pulling away their clients, the changes do represent a direct assault on the premium price many advisors expect to earn for their advice-giving services. The sub-text is not hard to see: if you are paying a high price for financial advice, you are probably not getting what you pay for. What is too high a price? Anything more than zero.

North American baby boomers have — to this point — been hesitant to move from their comfort zone of human-centric financial advice, a solace to historian financial advisors who primarily are pulling fees from their existing book of business, not growing it.

But threats abound: 3x the U.S. annual GDP or $30 trillion, is set to transfer from baby boomers to their children in coming years. These digital-first generations are much more likely than their predecessors to have  web-based services that play an outsized role in their financial advice. And what are we seeing from these digital providers? Two things matter the most:

  • The plans are free.
  • The marketing leads away from traditional financial advisors.

The News of the Free seems to validate the perspective of revolutionaries planning/hoping for a shake-up in the industry. But is it all so simple? Are financial advisors just one more career destined to be robotized?

 Distinction With a Difference

The rise of free digital planning should surprise no one. The technology that calculates retirement needs, spending limits, budgeting effects, social security options is all fairly simple. The rise of AI and machine learning has made the calculus-grade mathematics behind financial forecasting old-hat for Silicon Valley technologists.

There is a reason why the price of the plan has dropped astronomically from its introduction in the marketplace in the 1990s: the technology to do it is relatively cheap to build. In contrast to the cost of complex “next right action” AI systems, open API data lakes, and other client-facing technologies, a Monte Carlo analysis is yesterday’s news.

Note: No historical data was available on average financial plan prices; this number is gleaned from anecdotal experiences of advisors working in planning-based (vs. commission-based) firms at the time.

Is this because the value of the plan has diminished in these last 20 years? Not at all. It is because the cost of the underlying technology has shrunk significantly, allowing disruptive players to reshape the pricing model, upending the expectations and demanding a response from the traditional providers of financial advice.

The massive reduction in market price for a financial plan should not concern true comprehensive planners, just as the precipitous fall of investment advice fees on portfolios should be met with a shoulder shrug. There is a measurable and meaningful difference between planning and the plan, between advising and the advice, and herein is where we find the Third Way.

The Third Way

The historians are right. Financial advisors have risen above the fray of their disruptors again and again. But not all financial advisors. In every disruptive event in the industry there were mass causalities as many professionals found ways to retire, sell their books of business or just slowly disappear. The risk for this turnover of people in the business today is higher than ever, with an ever-aging populace of financial advisors.

But the revolutionaries also are right. This time is different. The technological wagons have circled on the majority of commodifiable services offered by financial advisers and nearly all the Races to Zero have been won by disruptors:

  • Security Picking? Race to Zero won by Robinhood.
  • Diversification? Race to Zero won by Fidelity.
  • Financial Plan Delivery? Race to Zero soon to be won by Wealthfront.

But the planning is not the plan. The plan — that digital or paper document of how much you should save per month or how much you can spend in retirement or how much you need in your IRA to be free to retire at all — is the least valuable part of the planning experience. The three historical advisory services: security picking, diversification, and financial plan delivery are now table stakes in the game we are all playing. To provide serious financial advice to consumers of all generations you must have them, but having them will not be enough.

Rising above the verbal fray between the historians and the revolutionaries are the integrators, those who recognize the rise of digital services, incorporate them into their service offerings, and get back to the real work of financial advice.

When I say the planning is not the plan, I am reminding all of us that our clients gain more from the conversations, the nudges, the reminders of how to behaviorally adjust to their goals than they do the numbers that make us right.

A very simple piece of technology can help the client know how much to save or the year they can retire. But it cannot calm nerves as markets crash. It cannot empathize with a family member’s illness all while encouraging fidelity to long-term goals. It cannot adjust the plan based on the priorities hidden in the subtext of stories. It won’t notice a lie about savings rate or the importance of retiring early.

The planning, a decision-by-decision partnership between a qualified advisor and a client, is the most valuable thing advisors do. In fact, it is the only unique thing left. There will be thousands of advisors and dozens — if not hundreds — of firms who do not make the trip into the next decades of financial advice. Some will fail as historians, holding onto the past and defending their right to the status quo. Some will fail as revolutionaries, rushing too hard and too fast toward a digital future where any hint of human connection is commoditized and lost.

The integrators will recognize the threads, the threads of yesterday which weave their way through the threats of today. They will see the human truths which are at the core of financial planning: fear, hope, connection, drive, tribes, families, dreams and wonder. These core human capacities cannot be digitized in any real way.

The integrators will recognize that the products, the habits, the preferences of the past may not serve them or their clients anymore. They will recognize that different pricing structures will be required, with refreshed value propositions. They will exude the sage maturity of those who have sat with a hundred retirees, attended dozens of high school graduations, delivered all-too many life insurance proceeds, and they will move with the youthful speed of digital connectivity addressing client wants while quietly meeting their unspoken and more vulnerable needs.

Among the clanging gongs and cymbals of the war between historians and revolutionaries will rise the integrators, and with them the hope of continuing to offer the beauty of true financial planning: our most valuable thing.

Nick Richtsmeier, chief innovation officer at Trilogy Financial - a privately held financial planning firm with $2.75 billion in brokerage and advisory assets.

The views expressed in this article represent the opinion of Trilogy Capital, Inc. This material is for informational purposes only and it is not to be construed as tax, legal, or investment advice.  It is not intended as an endorsement of any specific investment or services.  Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. Investment advisory services offered through Trilogy Capital Inc., a Registered Investment Advisor. Trilogy Capital markets advisory services under the name of Trilogy Financial, and affiliated but separate entity.


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