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Schwab’s Free Planning Tool Means Advisors Must ‘Think Like Sharks’

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Charles Schwab’s announcement Thursday that it’s now giving retail clients a free financial planning tool is another wake-up call that advisors have to up their game as multiple players digitize more processes, industry watchers say. 

“The news is yet another reason advisors need to worry about the future of their businesses and need to pivot ASAP to offering an enriched service offering that emphasizes their professional approach beyond investing,” said Tim Welsh, head of the consultancy Nexus Strategy. 

“Once again, Schwab is taking away yet another aspect of their value proposition,” Welsh added.

Others agreed. 

As robo-advisors and huge industry players like Schwab “keep moving” into the areas previously dominated by financial advisors, “advisors need to think like sharks and keep swimming or drown,” said Craig Iskowitz, head of the consultancy Ezra Group. 

This means offering more advice, specialized financial planning, alternative investments and/or distinctive services for a particular client niche, like retired pilots or bass fishermen, Iskowitz explains.  

“You have to offer the best service to survive,” he said, and that means surpassing “what Schwab is giving away for free. It’s about finding your niche and then excelling at it.” 

More and more players are offering free financial services. 

As happened to traditional barber shops facing Supercuts, how do you stand out and charge more? “The story is that a consultant told the barber to put up a sign that says, ‘We fix $7 cuts,’” according to the consultant. 

In a climate in which there’s a lot being given away, the question becomes, “What do you offer?” Iskowitz asked. “The answer is better value … . You’ve got to explain and justify your value proposition or you’re out of business.”

Positioning Is Key

Faced with another step that “commoditizes planning,” advisors need to pivot to prospect, according to Gavin Spitzner of Wealth Consulting Partners.

“If you’re an advisor with the mindset that there are all these self-directed clients using Schwab, Vanguard and Fidelity that will come you when they need advice and planning,” Spitzner said, the situation has become more challenging.

When these prospects are pitched by an advisor with plain-vanilla planning, they might think, ‘Hey. I get this [tool] for free and can engage with it whenever I want,” he explained. 

Or such clients might use Schwab’s $30-a-month hybrid plan that includes human advice from a remote financial professional. 

“Advisors that get it and that have seen what’s coming with technology like this, they shouldn’t be worried,” Spitzner said. “Those who have a specialized practice and recognize their value is behavioral coaching and life planning won’t have any issue with this.”

In fact, he added, these advisors “may welcome [Schwab's free tool] as it brings more consumers into the advice fold through light planning.”

But advisors whose value “is wrapped up in the more commoditized aspects of investment management and basic planning” — and who tend not to “help clients set goals and understand their relationship with money in a much deeper way — may have issues with Schwab’s move, as they do with robo advisors,” Spitzner explained. “And those advisors should be worried.”

Schwab’s latest move is another threat to those already being hurt competitively by the growing number of free financial services and resources. 

“Those advisors who ‘get’ their value to clients are focusing on delivering what cannot be digitized, and that’s the key,” Spitzner said.  

In other words, it pays to think like a shark in this context, as much more competition and further digitization are expected. 

Summing up the Schwab financial planning tool and related services, Tom Brakke, head of TJB Research and the Investment Ecosystem Academy, tweeted: “Basic now, but no doubt more robust in the future. The ecosystem evolves.”

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