There are many competing initiatives to create new regulatory standards for financial planners. Although any one of these proposals may have a significant impact, market trends and evolving consumer advice preferences will be far more important. Therefore, you need to understand these new trends and adjust their practices accordingly.
The following three macro trends are driving the shift to a client-centric model, in which clients demand customized advice, from a financial advisor-centric world, in which advisors mapped out what products clients invest in: a movement toward a fiduciary or “best interest” standard; the threat of low-priced digital advice disruptors, such as robo-advisors; and, most important, consumers’ changing financial dynamic.
To get ready, you need to understand these three market trends and evolving needs of financial consumers, then assess the threats to their practices and where opportunities exist to remain viable.
Notably, they need to be aware technology is changing how advice is delivered. This will deepen clients’ interaction and engagement, allowing for the provision of more holistic advice in a scalable way. The future of advice management will resemble the medical, accounting and legal professions with university preparation, rigorous professional training, designations and standards.
In addition, clients’ financial lives are becoming more complex, and they will demand greater participation and transparency in the process — as well as greater value from services offered. You need to elevate your processes to meet this changing dynamic.
You will have to do this in an environment in which competition for clients will be more intense, fee compression will accelerate and increased regulatory scrutiny will not subside. You need to become more efficient and do more with less for their clients.
To succeed, you need a strategic plan to migrate to this new client-centric advice market. Here are a few ideas to consider:
1. Elevate your processes and address new market needs by using technology to be a “techno-adviser” and collaborate with your clients more effectively.
Specifically, implement fintech solutions to allow more efficient engagement with clients so that they have access to more self-serve information that frees up more of your time to provide more complex personalized holistic advice in a cost-effective manner.
Furthermore, provide clients so that they can start the financial planning process at home, where they are more comfortable, then have them meet with you to finalize it. You should also use technology to create a seamless prospect-to-client journey as many robo-advisor platforms and client portals now provide the ability to achieve this service.
In addition, ensure that your front office has effective risk-assessment and document-management capabilities as you may need to prove the rationale for your recommendations and decisions in greater detail in a fiduciary or best interest environment.
2. Outline the various financial planning approaches, and when and how to use them with prospective or existing clients.
Moving to a financial planning model is not a “one size fits all” comprehensive solution. There are multiple approaches and types of financial planning to offer your clients as you migrate toward the client-centric model.
You can use goals-based financial planning in which clients’ dollars are allocated to a specific — or multiple — goal(s) or project(s) that can be measured. Fees are based on the extent of the analysis.
Another approach is cash-flow-based financial planning, which aims to account for every household dollar by combining the total inflows from various sources and ensures that they’re matched with total outflows. Fees are based on the extent of the analysis and the complexity of the client’s situation. This approach is usually used in comprehensive financial plans.
Under these approaches, you may deploy these types of financial planning:
- Project-based. This is done on a one-off basis, in which the client engages the financial planner or advisor for a specific need in exchange for a retainer fee or one-time fee. This is a good approach for young, tech-savvy clients who don’t know how much advice they need and don’t wish to commit long term at this point.
- Modular financial planning. This is a great way initiate a new relationship. Each module, such as investment or retirement plans, are self-contained. This allows you to build up a relationship and the client’s confidence, which may lead the client to a full financial plan. This usually works well with a retainer fee model.
- Holistic financial planning. This is the traditional model that requires extensive training, experience and financial planning experience. It tends to be comprehensive, either goals- or cash-flow based, and encompasses the full range of banking, investment, insurance, tax and estate planning. Fees may be charged for each service separately, and additional fees to keep the plan updated.
- Segmented financial planning. This model is goal-specific and enables you to segment your clients by offering each segment only the financial planning that they need. This can be offered on a flat-fee basis or bundled with other fee arrangements.
Although many financial planners and advisors are concerned about increased regulation, they should rather follow market trends and prepare their practices for what clients want. Eventually, regulation will need to be modernized to meet these new market dynamics, and those who are prepared will be well positioned for the future.