In the ongoing effort by independent financial planners to distinguish themselves from old-school commission-based brokers, the advice-only model is going to be difficult to match.
For sure the advice-only moniker, like almost every other attempt at fresh-sounding ways to separate advisers from brokers, carries the usual nomenclature clunkiness that will send folks down another Google rabbit hole trying to accurately dissect the message.
For perspective, just think of how the advisory space sank its meat hooks into the term fiduciary. At first, it was slipped in almost like a legal disclaimer, which it kind of was.
Then it became official. Then it got muddied up with the idea of something called “best interest,” which actually sounded better than fiduciary until you realized “best interest” applied to those pesky brokers and their annoying commissions.
Then Fisher Investments started carpet-bombing the airwaves with ads promising to act as a fiduciary, and people started to un-remember the messy cow pie that founder Ken Fisher stepped in at an industry conference in 2019 while trying to be witty.
(For those keeping score at home, the previous chronology is an abridged version of history and is not meant to be copied and pasted directly into Wikipedia. But I digress.)
In basic terms, advice-only planning is just a relationship with a financial professional that doesn’t include investment management. In the earliest days of financial services, advice-only might just as easily have been referred to as financial planning, but that seemingly straightforward description has since been stretched and diluted nearly to the point of white noise.
Advice-only isn’t particularly new, but it is a fascinating study because of how and why it’s gaining traction.
If ever there was a way for independent advisers to sever associations with the old-fashioned brokerage industry, it’s with a business model that takes asset management out of the equation.
Purists might argue that removing the investment management function transforms the financial planning process into something different. They would be half right.
More accurately, removing the investment management function represents the ongoing evolution of financial planning, and financial planners should take note.
The fact is that the investment management part has become a cheap commodity that most regular people are already doing in their own retirement plans and probably don’t even realize it. I’m reluctant to say this out loud for fear of having my picture pasted on dartboards at advisory firms across the country, but anyone with basic math and reading skills should be able to manage their own investment portfolio in 2022.
None of this is to suggest a looming wholesale shift across the financial planning industry to advice-only business models.
For starters, a lot of people still want to hand over the investment management work to a paid professional. Regardless of how basic the portfolio might be, there’s comfort in knowing it’s someone else’s job to worry about the markets and the economy.
There’s also more than a little inertia behind the investment management services provided by financial planners. For the most part — and again, I realize I’m risking dartboard infamy — investment management is the easiest justification for charging clients fees based on assets.
Even though there’s never been an industry that has discovered so many different ways to charge consumers for essentially the same thing, we know that upwards of 90% of advisers still use some form of asset-based pricing.
Kind of hard to do that if you’re not actually managing the assets.
Thus, while we can assume asset-based pricing is here for the duration, advice-only planning has so much potential, particularly for advisers willing to hustle in all those planning areas related to tax management, college planning, retirement planning, estate planning, household balance sheets, risk management and living full and fruitful lives.
Distinct from some efforts to stand out in the wealth management space, advice-only is more than just a marketing gimmick because it’s difficult to hide behind an investment portfolio when you aren’t managing investments.
And when it comes to the fees, advice-only is about as transparent as it gets. Whether charging hourly, flat-fee, retainer or even a fee tied to net worth or income, the absence of an investment account to draw quarterly fees from forces a full and open presentation of an actual bill for service.
Let’s be honest, that kind of clear and candid reality around fees is still rare in the wealth management space, even among those touting their status as fiduciaries.
InvestmentNews 40 Under 40 Alumni: Sameer Somal
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