With the sudden hit to AUM fees brought on by the coronavirus crash, poorly run advisory practices may fail, according to Michael Kitces. One of the most well-known and prolific commentators on financial planning, Kitces joined Buckingham Wealth Partners (BWP) with a vision that together they can have a more powerful impact on the future of the industry.
He joined BWP last week with Jeffrey Levine, who with Kitces has been writing Nerd’s Eye View, the popular blog for advisors, at Kitces.com. Kitces also speaks frequently at industry events and has founded other businesses, including the XY Planning network for Gen X and Y advisors, and AdvicePay, a payment processing system for financial planning fees. He also was a partner and director of planning research at Pinnacle Advisory Group, a $2 billion RIA headquartered in Columbia, MD. Levine was CEO and director of financial planning for BluePrint Wealth Alliance, based in Garden City, NY.
BWP, with just under 500 employees, recently reached over $50 billion in assets under management and advisement. It includes two businesses: a mega-RIA, Buckingham Strategic Wealth LLC based in St. Louis that manages about $18 billion for families, institutions and businesses around the country; and Buckingham Strategic Wealth Partners, a TAMP supporting 1,000 independent advisors.
In my interview with them this week, Kitces and BWP’s chairman and CEO Adam Birenbaum talked about the advantages of their alignment. Kitces noted he and Levine have been scaling Kitces.com for the last two years, building the brand and visibility, and will soon add their eleventh employee. But as more potential advisory relationships came in through that platform, Kitces and Levine needed to decide which of their advisory firms would get the business – and they wanted to eliminate that conflict.
“Earlier this year we decided to make a change, and I reached out to Adam,” Kitces said.
Why contact Buckingham, when the two advisors could have approached any other mega-RIA? According to Kitces, Buckingham not only had the size and scale, but is also one of the few firms that has succeeded as a national brand. Larry Swedroe, the firm’s chief research officer and a regular contributor to Advisor Perspectives, is another industry heavyweight who has long been a proponent of evidence-based investing and planning. That methodology has also been a focus of Kitces. Another big factor was that BWP leadership, well known to Kitces and Levine, is primarily in its 30s and 40s.
“They have the next-generation leadership team,” Kitces said. “They are looking at the business in the long term, where it’s going to be in the next 10 or 20 years, not the next five years.” Kitces said, “Adam was 31 when he took over 10 years ago. [At the time] it had $5 billion, and look where it is 10 years later.”
Birenbaum praised Kitces and Levine, who are now employees of Buckingham. “I don’t believe this is hyperbole: Michael and Jeffrey are the preeminent thought leaders in the financial advisory space,” he said. “And to have the opportunity to bring that thought leadership to our firm to better enhance advisor capabilities is an unprecedented opportunity for us for us. When Michael picked up phone, we figured out how to make it happen.”
As part of their work at BWP, Kitces and Levine will concentrate on developing evidence-based financial planning research and strategies, business development, and corporate strategy.
In the short term, some advisory firms will likely reign in spending, but others may choose to outsource to cut costs, and some may find themselves forced to sell or risk shutting down. With all the uncertainty brought on by the coronavirus, advisors face reduced revenue from the stock market tanking, yet at the same time nervous clients want more of their time and advice. “These are trying times for advisory firms and will be challenging for some,” Kitces said. “Firms that are not well run may go out of business; unfortunately, I don’t think all advisory firms will survive. The firms that do will manage costs, reinvest for growth, and reinforce their value propositions.”
Just as other major threats like 9/11 and the 2008 financial crisis have passed, so will the coronavirus. Meanwhile, the expertise advisors have is need more than ever, Kitces said.
In addition to business development and corporate strategy at BWP, Kitces and Levine will focus on more evidenced-based financial planning to complement Buckingham’s evidence-based (factor-based) investment research. The industry does not have standard systems or analysis it uses for typical financial planning, Kitces said. For example, he said, most planners use different approaches to determining sustainable withdrawal rates. “Everyone does it differently,” he said. “We should come up with a common answer.”
Birenbaum added, “For over 25 years, Larry Swedroe has been a pioneer, begging our industry to recognize that, and asking the world to understand that there is a prudent way to invest that helps give investors the best chance of success.”
Birenbaum also acknowledged that investing is only one part of the planning puzzle. The firm will continue research on not only prudent withdrawal rates, but also will develop recommendations that could become standard approaches for tax and estate planning. “We are going to continue with the help of Michael and Jeffrey to do all of that research, and have it serve as a living laboratory and be viewed by the rest of the world as more prudent planning and investing practices,” Birenbaum said.
Dorothy Hinchcliff is the editor of Advisor Perspectives.
Read more articles by Dorothy Hinchcliff
