Cathy Curtis of Curtis Financial Planning, Alan Moore of XY Planning Network, and Don Phillips of Morningstar joined Morningstar’s Christine Benz at Morningstar Investment Conference U.S. to talk about how advisory practices are evolving. Here are some key takeaways from this conversation.
Is a financial adviser today looked at more as a coach?
Don Phillips: Talking to someone about your money and life issues is invaluable. People who came out of brokerage trading background didn’t have a lot of training on life planning. Registered Investment Advisers have been talking about life planning for a long time. Such advisers build stickier relations with clients in comparison to advisers who facilitate short term investments.
Alan Moore: It is not just about saving, investing, tax planning and building portfolio. It is about what you are trying to accomplish. Advisers have to help clients discover what they want in life. This is the only profession where we can ask clients such questions. How do you use your finances to support your version of life. Everyone’s version of life is different. Robo advisers haven’t replaced financial advisers. They created great rebalancing tools. They haven’t replaced the conversations people have with advisers. Navigating the emotions related to financial decisions is the value of real financial planning. The younger generation of advisers have got into this profession because they want to help people not because they want to make money. The motivation for getting into this profession is changing.
Why a niche model helps advisers
What part of the financial planning process can be digitalised?
Cathy Curtis: A lot of big advisory firms have tried digitalising financial planning, but it has not worked. My niche is women because they like to talk. They are open about themselves. They make it so easy for me to help them because they tell me what they are thinking. Rarely is the conversation about investment returns. More advisers are getting coaching practice and adding that as an overlay to their practice. People will pay for value. You can invest in any product at the click of a button at a low cost but you need a financial planner to have a conversation with you.
Are youngsters taking up robo services as they have simple goals?
Don Phillips: Robos are enhancing the existing practices by offering technology. There is a huge audience to which the financial advisory community is not reaching out to. Not all youngsters who have just started a job can afford the services of a financial adviser. So robo advisers can help expand the market.
Alan Moore: Technology is streamlining the back office process. That is not providing any value add to clients. These players are able to open accounts swiftly. Digital tools allow us to better understand the clients and give insights into their behaviour. There are tools that help calculate your specific needs like student loans and tax planning.
Is the AUM based fee model under threat?
Don Phillips: You can argue philosophically that it would be better to have a transparent model. Pay just like you pay to attorneys and lawyers. I don’t see the AUM model going away because clients are not upset with it and I don’t see why advisers would move away from this model. The AUM model is seamless. You don’t have to write a cheque.
However, the AUM model doesn’t work for very large clients. This is because it doesn’t make economic sense to pay a percentage of the fee on large assets because the fee would be many times worth more than the value of advice. The bulk of the investors who are getting advice under AUM fee model are happy as of today.
Cathy Curtis: I have a hybrid model where those who don’t want an AUM-based fee can get a one-time service (financial planning and investment management) with a minimum flat fee. The fee is not that low. Once you become successful and grow and bigger clients start paying your AUM based fee and if you start taking such one-time projects, you shift your focus from large clients. That’s not desirable.
I have partnered with another young adviser who is focused on this segment and willing to take one-time projects and build a relationship over time with such clients. I pass on referrals to her.
Alan Moore: The younger generation is more willing to pay for advice than some of our older generation clients. Our grandparents went to bankers for seeking financial advice. Younger investors have access to information through the internet. Ten years ago, youngsters didn’t know what fiduciary means. Now, youngsters do research on the internet. They want to know how much they are paying for and what they are getting in return. At XY Planning Network, we have monthly, hourly, project-based, annual and quarterly retainer fee models. Youngsters are willing to pay for advice and you need to have a business model that suits them.
