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Investing Has Gone Digital; Financial Planning Must Catch Up

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What You Need to Know

  • Digitalization of financial services has moved faster to democratize market access than the financial planning business.
  • Despite technology, advisors still utilize the same marketing and service infrastructure that only reach a small percentage of the wealthy.
  • Easy access to markets means the need for advisors to help guide this group with investing ideas and caution.

It’s hard to overstate how much the digitization of financial services has revolutionized the financial life of the average American. Your neighbor has never been able to invest so affordably, had access to as many choices nor had the ability to research investments so thoroughly.

Unfortunately, while the financial services system has adapted to give investors access to ways to invest their money, many Americans still don’t know where to find reliable financial advice. This is the next hurdle that financial technology must address.

Reducing the friction, or pain points, is the key. Before the internet, discount brokerage investors had to place a call and pay a significant fee to buy or sell stocks. Early online brokerages offered an alternative, but still had clunky user interfaces and high fees, not to mention account minimums that required investors to save a pile of cash before they could deploy it.

In 2015, Robinhood took a giant leap forward by not only cutting fees and allowing anyone to invest with no account minimums, but by adopting design cues from social media apps like Twitter and Facebook to “nudge” people to invest.

Intense colors, algorithm-based news feeds and fractional shares all encourage investors to take action, but they also make investing feel like less of a chore and more of a choice. This is the real effect of gamification, fractional shares and low fees.

Of course, gamification left unchecked, especially when paired with margin and leverage, is risky and should be addressed. However, the most resonant criticism of the financial services industry is lack of access. Account minimums and high fees in brokerage accounts keep smaller investors sidelined.

There are clear parallels between the shift in access to brokerage services and the average American’s access to quality financial advice. While retail stock ownership may trace its history back to the advent of the public company, financial planning is in its relative infancy. Planners today trace their roots to a meeting in Chicago in 1969.

Financial planning has historically been expensive because it’s a labor-intensive practice that requires substantial professional insight and data-backed projections.

Beyond Servicing

Because it was difficult and expensive to produce financial plans, it made sense for financial advisors to focus on primarily serving the wealthy and ultra-wealthy. Middle- and lower-income Americans have struggled to find the same quality financial planning services because people that fall into a lower asset class threshold “have been historically difficult to serve in a cost-effective manner.”

Creating and servicing a financial plan isn’t the only cost driver for advisors, who often spend as much time looking for their next client as they do serving current ones.

Today’s advisors spend only about 20% of their time meeting with clients and about 20% of their time in “business development” activities. The other 50% or so is spent on “back office” activities — preparing for meetings, planning and analysis and administrative work.

While today’s planning technology and lower-fee investment products have improved the speed at which financial advisors can produce financial plans and reduced the cost of investing and servicing those investments, little has been done to improve the other 20% of an advisor’s “wasted” time.

McKinsey consultants found that “the structure of the financial advisory network remains fundamentally rooted in a physical branch network,” the same structure that has defined the profession since its inception.

While improvements in planning and investing technology help financial advisors serve clients more quickly, and thus a larger volume, advisors utilize the same marketing and service infrastructure developed to reach only a small percentage of wealthy Americans.

Inflection Point

The universe of financial services, planning and wealth management is at an inflection point.

Wealth management professionals have dramatically increased their ability to provide financial advice, but are spending as much time as ever finding new business.

At the same time, there are millions of Americans who have unfettered access to complex financial products and boundless information, but now urgently need professionals to help guide them through the feed of information and choices available to them.

Used thoughtfully and with proper safeguards, it’s possible to unlock access to the millions of American investors who need sound financial advice, but don’t know where to turn.

Advisors have spent decades developing the tools and techniques to serve the next generation of investors, but still sit on the sidelines of an industry that is slow to change.

The solution, for financial advisors, planners and wealth managers — who are willing to embrace it — is to meet investors where they are and continue to invest in solutions that put the client at the heart of their business, from discovery to onboarding.


Chris Sonzogni is the Director of Advisor Marketing at SmartAsset, where he helps financial advisors build relationships with prospective clients. Previously, Sonzogni helped financial firms develop their consumer and investor-facing brands, both as the lead on Investopedia’s custom content team and as an in-house marketer at PGIM Fixed Income and AllianceBernstein.