What do the recent custodial industry titan moves and comments of last week mean to RIA’s, the financial services industry, and most importantly the clients they serve? From where I sit, they all point to a recognition of the value of financial planning as a center point of an advisory service. But let me also be clear that for clients of the industry to maximize the value from the planning process, a crucial element must exist in the financial services relationship that still eludes most advisors, and their firms.
Last week, Charles Schwab announced that it is buying TD Ameritrade for $26 Billion dollars. While Schwab is a widely used gold standard for RIA custodial support in the US, they are also direct competition to that same independent RIA advisor community. Therefore, it’s no surprise that on the heels of their announcement to end trading commissions on ETF’s, stocks and options last month (thus evaporating billions in revenue), they made moves to expand their other lucrative business services like financial advisory via the TD purchase. Also in the news, Merrill Lynch announced that it’s 2020 compensation plan was now going to favor and even encourage the “sale” of financial plans to clients of the firm. Coinciding all this, a JP Morgan Investments analyst advocated for “benchmarking to goals” in a recent LinkedIn article, implying that a focus on goals-based planning is now more important than investment benchmarking. This of course is not the first news of its kind recently, but the sum of it tells me that a focus on value creation vis a vis contextual planning is well underway in the industry, and everyone from providers to customers are recognizing the importance of achieving financial clarity as a means to better reach their goals.
On one hand, this is all music to my ears. As CEO of a fast-growing financial planning and wealth management firm, I could not be happier to see influencers in the industry boldly advocating for the process of financial planning. Alternately, my experience advising everyone from the mass affluent to the Family Offices suggests that a key element must be present to ensure that the benefits of financial planning are fully realized by the customer and that the financial planning process does not become a conduit to simply “sell investment products”. The game changer for our firm came 5
years ago when we started offering a flat fee solution to identifying capital’s best and highest use. In June of 2017 we dropped all product sales (and therefore potentially conflicting advice) in favor of a monthly retainer model service offering.
The insights gained from our now over 150 personal and business planning engagements have been astonishingly clear: to support capital’s best and highest use you need to remove the financial advisor incentives that exist in the traditional financial services relationship…. including things like AUM fees. While this statement amounts to the highest form of heresy to most in my industry, I can’t deny my personal experience and its potential power for business owners, and real estate investors in particular. Thus, I encourage my fellow entrepreneurs to explore their high velocity / high ROI business growth opportunities and to skip the discount investment services aisle and further challenge my peers to continue to re-imagine ways to maximize the benefits of planning to this value-driven group of risk takers.