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In my 25 years of experience, I have witnessed a litany of changes to our profession. I can vividly remember when “A” shares were the way that most clients bought mutual funds and financial planning software was run through a DOS-based computer with the now-defunct Harvard Graphics software.
How times have changed.
The title of this article has to do with the revelations I recently had about how we need to help each other as regulatory pressures increase and the growing appetite for new financial technology solutions are striving to replace financial advisors. The cataclysmic shift in our industry is driving massive pressure on commissions, fiduciary responsibilities and margins.
A recent situation gave me the impetus to write this article. A client sold his business and netted out about $5 million. I have been servicing this client for years, with the large amount of his net worth always being in the business. This was the first time he had real liquid money. We spend over four months developing a financial plan
Many other financial “advisors” approached my client once they heard he was selling his business. However, because of our 10-years relationship, my client ultimately chose to work with me and he and I to set a plan into motion based upon his goals and objectives.
My client started to enjoy retirement and took up hobbies like golf and tennis. Through his hobbies he ran into different financial advisors and shared our financial strategy in great detail with three of them.
The rest of the story makes me sick to my stomach.
Although he was on a fee-based only approach, one broker who worked for a major wirehouse told him I was making $86,000 in fees every year, which you can imagine got him alarmed (the total fees were actually substantially lower than that). The numbers weren’t even close. Another advisor asked him why I didn’t sell him an annuity and tried to tell my client that he had an annuity that was guaranteed to double in 10 years. What he didn’t explain was the difference between cash value and protected income value. The third advisor challenged him on why we wouldn’t just by T-bills and that investing any money in the markets was completely silly without even knowing the overall plan, the income the client needed and his goals for the next 35 years.
This isn’t a story that I face alone. Advisors face it every day. We are our own worst enemy. For 25 years I’ve rarely met or seen a situation where a financial advisor from a competing firm doesn’t try to do their very best to slam the strategies we put into place for a client. But why? To just get someone’s business? To meet your AUM goal? To drive more revenue in your business? Recently, Michael Kitces wrote about how our industry needs more specialists who professionally refer as other service-based industries already do.
The media adds to the confusion over how financial advisors work and how much they should be paid. But, what’s worse is how we cannibalize each other by second-guessing each other’s strategies, cutting fees to move accounts and twisting how products actually work to clients. It makes us look bad because it gives a shady perception to clients about our profession. We are supposed to act as fiduciaries to our clients but we don’t to each other. Instead of slamming each other, what if we were to suggest that our competition was actually pretty good and was worth every penny the clients were paying?
As an owner of multiple entities, I’ve got to constantly use lawyers for all sorts of different tasks – creating operating agreements, employment and 1099 contracts, securing trademarks and dealing with other nuisances.
It’s interesting when you engage with a lawyer because there is an embedded expectation that costs will be high, and you will be on the clock anytime you are on the telephone. In a bunch of cases, lawyers don’t even volunteer their hourly rate until I ask. More often what you’ll get is a monthly, itemized bill with the time allotted to the issues you gave to the lawyer. It’s expected that the hourly rates are going to range in the $200 to $400 per hour, but I’ve recently seen divorce and other cases where you have clients being charged $500, $600 or even $700 per hour.
What I’ve never seen (and this is why lawyers are smarter than financial advisors) is a lawyer who would massively undercut another lawyer over price just to get the business. There’s almost a professional credo amongst lawyers that they don’t undercut one another. If anything, when a lawyer doesn’t know an area of expertise or it is outside of their bailiwick, they will gladly refer you to another professional who can do it better than them. And… they’ll tell you it is worth every penny to hire that attorney to do the work.
Maybe LegalZoom might be the closest lawyertech product that is comparable to the fintech world we deal with today including roboadvisors, budgeting systems and other programs designed to replace the people like us who earn a living giving advice and managing money. Yet, no lawyers respect LegalZoom. I’ve never heard an attorney say, “Boy, that LegalZoom is a really great program.”
If we keep slamming each other, encouraging clients to file complaints, and cutting fees, we will whittle away the core of our business. It’s time that we all work in cooperation, where we respect each other and work on holding our fees, as do lawyers, and respect our competition. Heck, imagine referring someone to another advisor because they were better at something. We know how much we do for clients, while neither the media nor the public sees it.
Lawyers aren’t smarter than financial advisors, but we need to get smarter as a profession and know that there is plenty of business to go around and that our fees are worth it for clients. Next time you run into this situation, don’t undercut your competitor. Stand firm and tell the client that your price is the best deal they are going to get. We will all win in the long term.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS® is CEO and founder of oXYGen Financial, Inc., an Alphretta, GA-based financial planning firm.
Read more articles by Ted Jenkin
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
