How to Smash the Competition Using Advice-Only Planning
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The advisors who figure out how to work with Generation Z will take your wealthy Baby Boomer clients away. Stop rolling your eyes and listen to why.
Here are a few radical questions that hit on some problems in society. As you think about these, take your advisor hat off for a minute. Just take a holiday (take some time to celebrate).
1. Why do people wait until they have “a lot of money” to care about what happens to it?
In grade school, I used to go to gym and health classes because the government figured out that its citizens cost less and pay higher taxes when they are healthy and working. Financial literacy should start in first grade, but until the recent past it has not been a priority for the government until people start earning serious money, usually in their early 30s. Financial illiteracy cost Americans more than $352 billion in 2021.
This is because Wall Street’s lobbying dictates the behavior of elected officials. The financial services industry doesn’t view it as profitable to do anything besides get young people co-signed on their parents’ credit cards and into credit card debt or paying overdraft fees.
2. Why do advisors focus so much on products instead of people’s unsolved problems?
Because it’s way less scalable to take the time to figure out what people’s problems are.
Selling a product isn’t optimal for everyone, but that’s not the goal – a “solution” only needs to be good enough to be sold to undiscerning clients on the strength of the advisor’s personality and likeability.
3. Why is most of America is such poor financial condition and getting worse, despite the billions earned by the finance industry?
See #1 and #2 above.
The advice-only movement
I don’t have time for this Socratic exercise, you say.
Well, guess what?
Somebody else does, and they’re going to take your clients away!
While doing so, they may not only earn the business of Gen Z but also the qualified prospects – the millennials, retiring Gen Xers, and even some of the millionaire Baby Boomers – you’ve set your sights on.
An advice-only financial planner offers only financial planning services without the requirement or expectation to manage their clients’ assets. It is ideal for people who have high planning needs and can manage their investments on their own with some initial guidance.
An advice-only financial planner does not have discretionary authority over assets. They shun investment management completely. If the client does not want to implement the advisor’s recommendations on their own, the advisor refers him or her to a flat-fee advisor, preferably one who won’t shove the client’s money into nonsense products.
Let me be very clear: An advisor who offers stand-alone planning, with the option to manage assets, is not an advice-only financial planner.
Advice-only planning is good for clients who:
- Can listen to instructions
- Can use technology
- Want to manage their own assets
- Are willing to learn new skills
- Do not want to delegate
- Shun the shiny objects
- Are not lazy
This is not good for clients who:
- Need hand holding
- Are not open to learning new skills
- Want to delegate
- Want the advisor to invest in shiny objects for them
- Desire active management
- Are lazy
This is good for advisors who:
- Don’t mind going out to market themselves
- Are modest and resourceful
- Are consultative and analytical
- Love analysis more than implementation
- Are good at listening to clients
- Want their clients to be free
- Can explain things without confusing people
- Want to work with clients who DIY
- Favor passive management
- Are willing to put the client in control of how they work with you
This not good for advisors who:
- Want to make their clients dependent upon them
- Want to make their clients stuck
- Love pitching the next shiny object
- Love carrying out administrative or operational tasks
- Don’t want their clients to be free
- Only want to work with clients who delegate
- Want to qualify for “the conference” via quota
- Confuse people, whether intentionally or not
- Don’t believe in financial planning
- Want to shout at the Bloomberg terminal all day
- Want to control their clients
- Want to lock their clients up into long-term arrangements
The seismic shift
I hate to upset you, but I already have been doing that for years and you keep reading my articles.
Advice-only financial planning is the least-conflicted form of financial advice that has ever come into existence in all of history. It shifts the focus entirely to service and away from the sale, the products, the confusion, the lockdown.
Advice-only financial planning offers the maximum possible value that an advisor can provide. The advisor is paid for their advice, skill, and time; their pay is not related to any products.
And guess who’s seeking them out! Not just the broke 23-year olds; even the rich Baby Boomers are!
Criticisms of the advice-only model
Most of you are making too much money off the AUM or commission models to make a full-scale shift to becoming advice-only financial planners (and remember that means planning only, no investments).
I get it.
This article is not an indictment of any particular fee model. Rather, I want to encourage advisors to offer standalone planning as a service – or even better, to become advice-only planners.
Every time I suggest that, I hear:
- It’s “baby money.”
- It’s all DIY clients and I hate those.
- It’s not profitable (hard to believe, since the only costs are sunk costs like software you already paid for).
- It’s transactional, not a relationship.
- A one-time plan doesn’t go deep enough.
- I can’t track my hours.
- They’re going to harass me over every cent I bill them for.
- It’s too much liability for the amount I’d be paid.
- They’re going to stiff me.
Did I hear violin music playing?
Objection – overruled!
Okay advisors, listen up.
I am going to tell you very clearly that there is a shift in consumer preference that is staring you in the face.
I am telling you now.
If you choose to ignore it, keep in mind that historically things have not worked out too well for those who ignore large, obvious marketplace trends.
There is going to be a decoupling of financial planning and investment management, with planning being where the higher margins are, and investment management being increasingly commoditized.
This decoupling has already started. I am hearing advisors say, more and more, that high-net worth prospects are coming to them asking just for a financial plan. And before you say that those prospects are undesirable and broke, I’d love for you to hear these advice-only planner success stories below.
The salesperson says, “I’m going to find something profitable and then make people need it.”
The social entrepreneur says, “I’m going to find a need and make it profitable.”
Cody Garrett started his practice, Measure Twice Financial, a year ago, because he saw that the industry typically only served delegators, or tried to convert DIY investors into delegators.
He believes that individuals can manage their own investments once educated to do so, and that the true value of an advisor is in the planning.
He charges $6,400 per household for a three-month engagement that includes a review and analysis of the client’s financial situation, detailed personal recommendations, and a measurable action plan that he co-executes with them the last month of the engagement. The results after a year? He fully disclosed them on Twitter. And if that’s not transparency, I don’t know what is!
Jon Luskin provides hourly advice for do-it-yourself investors, offering a portfolio second review service which yields a simple investment plan that clients can implement on their own.
Jon set up his practice this way because he doesn’t enjoy implementation, but rather the analytical aspects of financial planning. He charges a one-time fee of $1,275 for his service.
Is he working with broke college students?
Nah, not really.
He serves a large amount of FIRE movement followers and Boglehead investors, working with about three families a week.
Twenty-three-year old Zechariah Schaefer, founder of Ascent Personal Finance, provides advice-only financial planning for Gen Z and millennials. He specializes in financial planning for investors employed in STEM or healthcare. Schaefer charges based upon complexity. His average fee is $329/month.
Despite being a few years out of school, he’s had no issue building a business – no surprise given his highly specialized niche! Let this be an example for all of you new advisors starting out. You don’t have to follow the ho-hum quota-driven business models of the past. Take a modern approach to serving that is creative and non-traditional, and forget about those exploitative wirehouse and insurance company training programs!
The Gen Z opportunity
Member of Generation Z were born between 1997 and 2012. That puts them at about 10 to 25 years old. If you want to learn more, check out this article by Pew Research.
“You’re nuts, Grillo,” you say, “I have zero interest in working with my 15-year old granddaughter’s friends.”
Let’s say you’re a 45-year old advisor. You’re going to be in business for another 20 years. That 15-year old will probably be getting married between 25 and 30, a time of great life transition where the need for guidance is spectacularly high.
You can sit around and wait until they accumulate enough assets for you to manage; but the way consumer preferences are shifting, that may never happen. It’s only going to get harder and harder to convince people to become full-service clients paying you 1%.
A few statistics and then I have to put my kids, who are driving me crazy, to bed.
- According to NAPA, only 30% of consumers have a financial advisor.
- According to the same study, the most common reason that a Gen Zer would hire a financial advisor is tax planning. Over 40% of Gen Zers who do have an advisor seek tax planning from him or her.
- 45% of GenZers want to own a home within the next five years, according to MoneyFit.
Gen Z is ripe for the taking, people!
Even if you have zero interest in advice-only financial planning, or working with the 17-year olds in Gen Z, it is my sincere hope that you will consider offering standalone planning. It offers higher value to the client, and it is what society really needs rather than more financial products.
They’re waiting to hear from you so go lift them up!
If anybody wants to learn more about advice-only, here are some resources.
Join my advice-only, flat, and hourly fee LinkedIn group
Subscribe to my Advice Only, Flat, and Hourly Fee Advisor Newsletter
Read my Marketing and practice management sheet for advice only planners
If you are seeking advice about how to grow your practice, here’s how I can help.
Read 47 Financial Advisor LinkedIn Messages ebook.
Sara Grillo, CFA, is a marketing consultant who helps investment management, financial planning, and RIA firms fight the tendency to scatter meaningless clichés on their prospects and bore them as a result. Prior to launching her own firm, she was a financial advisor.
Garrett, Cody. @MeasureTwiceMNY. (May 12, 2022). Tweet. https://twitter.com/MeasureTwiceMNY/status/1524939488237068298
Gen Z and Money. MoneyFit. https://moneyfit.org/blog/gen-z-and-money
Godbout, Ted. (26 March, 2021). National Association of Plan Advisors. Why Consumers Use—and Don’t Use – Financial Advisors. https://www.napa-net.org/news-info/daily-news/why-consumers-use%E2%80%94and-dont-use%E2%80%94financial-advisors
National Financial Educators Council. Financial Illiteracy Cost Americans $1,389 in 2021. https://www.financialeducatorscouncil.org/financial-illiteracy-costs/
Parker, Kim, and Igielnik, Ruth, (14 May, 2020). Pew Research Center. On the Cusp of Adulthood and Facing an Uncertain Future: What We Know About Gen Z So Far. https://www.pewresearch.org/social-trends/2020/05/14/on-the-cusp-of-adulthood-and-facing-an-uncertain-future-what-we-know-about-gen-z-so-far-2/
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