Broker/Dealers Must Move to Support True Financial Planning

The latest reporting from Cerulli Associates shows U.S. financial advisers are assuming more comprehensive planning responsibilities, implying to researchers that “a breadth and depth of relevant resources” will increasingly become a critical differentiator among broker/dealer (B/D) home offices.

According to Marina Shtyrkov, research analyst at Cerulli, adoption of more personalized and comprehensive financial planning service is on the rise in response to client demand, shifting regulation, and competition from digital, low-cost providers.

“Cerulli data shows that more than 60% of advisers agree that client demand for financial planning is increasing and that their financial planning process differentiates their practice from other advisers,” Shtyrkov says. “Avid adopters of comprehensive planning will need support from home offices and other partners to scale these offerings as they grow their practices.”

The Cerulli analysis argues broker/dealer firms must be prepared to put real dollars and staff effort into providing all the necessary ongoing support that surrounds effective financial planning services—as opposed to point in time, product-based advice. Firms that invest effectively here will gain a competitive edge over those that lack the scale to invest in building and maintaining this support.

“Scale creates an opportunity for many B/Ds and large registered investment advisers (RIAs) to support financial planning specialists and offer internal planning resources,” Shtyrkov adds. “Given their smaller size, however, many RIAs lack centralized planning support and, instead, partner with third-party firms for additional resources.”

On Cerulli’s analysis, for many firms, the balance between scale and depth determines the extent to which they can support true financial planning initiatives.

“B/Ds with scale can hire advanced planning teams of financial planning specialists that deliver personalized support for nuanced cases,” the research explains. “For example, these teams employ CPAs who specialize in tax efficiencies, attorneys with estate planning backgrounds, and CFP professionals who can help clients with complex planning issues, such as concentrated stock options and business planning. These highly-skilled positions are more difficult for smaller firms to invest in and sustain.”

The Cerulli analysis concludes that genuine financial planning is “a time-consuming and labor-intensive process, but it provides a sizeable opportunity.”

“As planning adoption grows, firms with an adequate range of resources to support the needs of adopters will be most likely to recruit and retain advisers who value comprehensive planning,” says Kenton Shirk, a director at Cerulli. “Cerulli believes that a strong financial planning support system will become an increasingly important competitive advantage for B/D home offices.”

Fee practices change along with service models

The Cerulli reporting finds fees for financial planning and other services are evolving in response to providers’ profit pressures and clients’ concerns about the value received.

“While adoption is increasing overall, pockets of the adviser community, including women and Millennial advisers, are more receptive than others to creating a planning-centric practice,” the research suggests. “Cerulli believes that financial plan deliverables will evolve toward technology-based, collaborative interactions.”

As the report lays out, traditional printed financial plans “today can become outdated almost as soon as they are completed.” Instead, clients increasingly expect adaptive, web-based planning solutions that help them understand and manage their plan as an ongoing project.

“As planning adoption grows, broker/dealers with the adequate breadth and depth of resources to support advisers’ [digital] planning needs will be most likely to recruit and retain advisers who value comprehensive planning,” the analysis concludes.

In terms of pricing their services, with growing adoption of financial planning, Cerulli finds some advisers charge a separate fixed fee for creating a financial plan, but this remains a relatively small portion of revenue.

“By putting a dollar figure on the fee, the explicit amount can sometimes cause greater resistance from clients and prospects, even when asset-based fees could be higher but are instead expressed as a percentage,” Cerulli explains. “Non-asset-based fees (e.g., flat fees, hourly, retainer) enable wealth managers to better reflect implicit costs and present additional opportunities when working with high-net-worth investors.”

These findings are from the second quarter 2018 issue of The Cerulli Edge – U.S. Advisor Edition, which discusses the evolving fees for financial planning and other services in response to providers’ profit pressures and clients’ concerns about the value received. More information on obtaining Cerulli research is available here.