On April 20, 2021, at approximately 12:45pm ET, this article was revised to indicate that FP Alpha offers tax and estate planning as part of its offering.
I’ve been a futurist in this profession for almost 40 years. My track record neither perfect nor terrible. I predicted that fee-only and the AUM revenue model were going to become mainstream at a time when everybody in the profession was being paid by mutual fund and limited partnership commissions. My long-ago prediction that life planning would become a mainstream part of real financial planning has held up well. I forecast that brokerage firms would lose market share to independent financial planners, although I expected it to happen faster than the incremental pace we’ve seen so far.
But in 40 years, I’ve never seen as many signs of change in the planning/advisory profession as I see right now. And no, I’m not just talking about more clients being comfortable with Zoom calls or a growth in the number of staff members who might be working remotely on a permanent basis. Entrepreneurship and creativity across the advisor ecosystem will result in big changes down the road.
For example? In my newsletter, I just wrote about Morton Capital in Calabasas, CA, which has a practice model that puts the interests of its staff members first, and which mandates 4-5 hours a week of personal learning and training. Every week. For everybody, including the people who answer the phone. Company CEO Jeff Sarti tells me that his staff gets more work done in 35 hours than he has seen other firms do in 40, and their morale is soaring. Oh, and one of the company’s “core values” is “enjoyment.” It’s an entirely new way to run a planning business, but as more advisors see how the clients are infected with the staff enthusiasm, I expect to see a lot more of it in the near future.
Professional consultant Matthew Jackson and I recently spent a month interviewing thought leaders from around the profession for an upcoming whitepaper. It will describe and define a number of new evolutionary developments in the way planning firms manage and market themselves, and the services they offer and the technology they use. What we heard about technology was especially interesting. For the last 20 years, our profession has experienced a slow progression of siloed software (CRM, financial planning, portfolio management, document management), each silo adding new features incrementally.
We’re all accustomed to slow progress and more of the same.
But when we talked with Joel Bruckenstein of T3 and Spenser Segal of ActiFi, they asked a pointed question: What if a disrupter were to rethink the whole software toolkit from the ground up?
Their ideas are going to be laid out in the white paper, but I can summarize them by saying that the future tech stack will put all client information in a single data warehouse, with different programs pulling out whatever data is needed for client contacts, online report generation – and for some interesting things that we don’t do now. For example? Imagine that the client data warehouse could check certain websites in real time, comparing what’s available with what clients already have. One example is home mortgages; the advisor’s data center contains each client family’s mortgage rate and monthly payment. The software goes out on the web, pulls in mortgage rates, and a simple algorithm compares what every client is paying with what they could be paying if they refinanced. If the rate could be improved by a certain percentage, the algorithm notifies the advisor, and the advisor notifies the client.
This sounds futuristic, until you realize that Commas, in Cincinnati, OH, is doing this very thing. The firm replaced big sections of its tech stack by writing low-code/no-code software, in this case Zapier (an if/then tool) and Airtable (a database that functions like a spreadsheet). The proactive nature of this service, where the software checks for client opportunities, is poised to make advisory firms more valuable to their clients.
Zapier and Airtable don’t, of course, replace the planning software, but here again you can see big changes looming on the near horizon. What if the software could do something similar to the low-code/no-code solution and make its own planning recommendations? This is already happening; programs like FP Alpha and Holistiplan will dramatically broaden the expertise that planners offer their clients. FP Alpha uses OCR technology to scan client documents and give advisors professional recommendations that they can then pass on to their clients in 40 different specialty areas including tax and estate planning, auto and disability insurance, long-term care, and elder care planning.
Holistiplan does much the same thing for tax planning; it scans the client’s tax forms and then offers observations that advisors can incorporate into their recommendations, such as reducing income if the modified adjusted gross income is incrementally higher than the threshold for the Medicare tax on investment income, or that low-income year (perhaps early in retirement) is an opportunity to harvest capital gains tax-free. Once all the tax data is input via the OCR scan, advisors can immediately use Holistiplan’s tax forecasting and planning engine.
We are already in the age of planning expertise in a box.
Meanwhile, we are on the cusp of completely rethinking the way the profession delivers financial planning advice. The traditional planning software lets advisors show clients detailed financial projections going out 20 or 30 years based on assumptions about income, investment returns, retirement dates, inflation, etc.
I’ve recently profiled a planning software called Elements, which – when it’s introduced this month – will run on the client’s iPhone, connect with the client’s investment, banking and credit card accounts, and calculate, on an ongoing basis, a number of ratios which directly reflect the financial health of the client, month by month. Among the ratios: the client’s savings rate, the income rate (the percentage of clients’ lifetime earnings that are reflected in their net worth), and something called the “total term,” which is the clients’ net worth divided by their current spending. Total term tells clients how many years they could live on their accumulated assets if they were liquidated.
The point is to help clients recognize the impact of their daily financial decisions and give them a better view of their progress toward a financial future whose distant outlines cannot be modeled with any degree of accuracy. Elements offers planners a better way to focus directly on helping clients develop better financial behaviors and shows them the impact of those behavior changes in real time.
If Zoom meetings replace in-person, face-to-face client interactions, that will save time for both the planning firm and the client. But if you look deeper into the implications of face-to-screen client interactions, you quickly realize that a much bigger change is happening in the profession. Several of the people we talked with about the whitepaper pointed out that advisors will increasingly be able to work with anyone, anywhere – which means their marketing efforts will no longer be confined to a 30-mile radius from their office.
But at the same time, every advisor competes in their territory. Think about it. A new doctor coming out of residency works right next door to a planner who (according to his website) offers “comprehensive financial planning” and “a fiduciary relationship.” But a quick web search turns up another advisor, all the way on the other side of the Mississippi, who works exclusively with young medical professionals, has developed expertise in helping them organize their student debt, and negotiates their first employment package with a medical group and shops for liability insurance – and that advisor is also, of course, offering comprehensive planning as a fiduciary.
Which of those two professionals would the young doctor choose?
COVID has moved the profession rapidly toward a world where it will be a no-brainer for consumers to hire planners who specialize in their niche in the larger economic ecosystem – professionals who know their idioms, special tax issues, how to smooth out their lumpy income or better manage their careers.
Advisory firms will have to specialize to attract new clients. As a bonus, their specialized knowledge will drive more value into their clients’ lives.
One of the people we talked with for the whitepaper suggested that a new class of specialized professionals will begin referring to each other. If that young doctor were to contact an advisor who only works with dental practices, the dental specialist would connect that doctor with a doctor specialist she happens to know. An alliance of cross-referrals would become a powerful magnet for clients, which would accelerate the siphoning of market share from the large brokerage firms.
In the medical profession, there are 24 board-certified specialties, in everything from urology to plastic surgery to neurosurgery. Can you envision something like that taking hold in the advisory world? In fact, it’s already happening. A recent issue of my newsletter included a profile of the newly-formed Center for Board Certified Fiduciaries, founded by Don Trone, who wrote the educational materials for Fi360’s Accredited Investment Fiduciary (AIF) and Accredited Investment Fiduciary Analyst (AIFA) designations. The new initiative will include board certification in, among other things, specialties like working with qualified-plan boards, serving on those boards, and ESG investing. Can specialties in particular types of clients be far behind?
The Center is also instituting a peer review process for advisors who receive its BCF mark, which makes it the second organization to start exploring peer review self-regulation. The National Association of Personal Financial Advisors (NAPFA) is also organizing its members to assess their peers – following, of course, a track laid down by the medical profession.
Why is this significant? If the profession creates a credible self-regulatory system through peer review, then the state and federal regulators might carve out true professional status for financial planners or investment advisors who submit to this routine oversight. There would be licensing, and we could finally bid goodbye to a system where anybody can claim to offer professional financial planning guidance.
The financial advisory profession looks a lot like it did 10 years ago. None of us will be saying that 10 years up the road. There will be transformations in who advisors work with, how they work with them, and the quality and breadth of advice that they offer. The tech stack of the future will be very different, and the concept of board certification and peer review will make progress toward professionalism in a shorter period of time than the fee-only revolution did in the 1990s.
We will look back at the pandemic year as the time when everything in the profession started to change –for the better.
Bob Veres' Inside Information service is the best practice management, marketing, client service resource for financial services professionals. Check out his blog at: www.bobveres.com.
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On April 20, 2021, at approximately 12:45pm ET, this article was revised to indicate that FP Alpha offers tax and estate planning as part of its offering.
