Advisors can do more financial planning and get paid for it, too, according to a new report from Aite Group.
That is, by using digital advice platforms to deliver advice at scale, firms can “convert a service they have already been providing for little compensation — financial planning — into a revenue stream,” states the report.
Noting that wealth management firm revenue has been declining amid the elimination of trading commissions and entry of low-fee digital investment firms, and advisors are spending more time providing financial planning that “traditionally” has gone uncompensated, a new generation of clients — older millennials and Gen Xers — might turn that tide.
Athough a previous survey of 400 advisors found less than 20% of clients willing to pay a fee for financial planning, the service is of “high value” to clients, especially in times of “high stress and uncertainty.” With this in mind, Aite wanted to find the “sweet spot” of how much would pay for a certain kind of service.
Aite looked at data from 622 households that made $100,000 or more. The sample consisted primarily of older millennials (age 29-39), Gen Xers (age 40-54), and baby boomers (age 55-73). More than half the millennials, 62% of the Gen Xers and 32% of the boomers earned $150,000 or more.
In an effort to scale advice through digital platforms, several financial firms have offered new services that provide access to an advisor through their digital platforms for a minimum investment, for example, between $20,000 and $25,000.
But some firms, such as Betterment, offer subscription and fee-based financial services from certified financial planners without a minimum requirement, states the report. Schwab Intelligent Portfolios Premium requires a $20,000 minimum balance but also charges a $30 monthly subscription.
Coach vs. Advisor
The study compared the interest of each generation in digital financial coaches — services that showed them, for example, where money was spent, savings goals, monitoring of progress, compared expenses to others, and real-time advice on how to spend money — and virtual financial advisors.