Fee compression has been a trend in the financial advisory business for a number of years. Many view portfolio and advice as a commodity. With the advent of the robo-advisor this perception has grown. Vanguard’s hybrid robo-advisor offers access to a human advisor for 30 basis points. It generally recommends implementation of its suggestions via Vanguard’s low-cost mutual funds and exchange-traded funds (ETFs).
Conceivably, an investor can get human advice with low-cost investments for under 75 basis points all in. In this environment of robo-advice and fee compression, how can financial advisors justify fees that might exceed 1% of assets of their services?
For many years, financial advisors to the wealthy have been providing services beyond just portfolio and financial planning advice. Some examples include assistance in negotiating the purchase of a private plan to doing background checks on domestic staffers. These concierge services have migrated to clients of lesser means as well. Some examples include accompanying clients as they visit assisted living centers and negotiating the purchase of homes and cars for clients. (For more, see: What the Wealthy Want Most from Their Financial Advisors.)
Some advisors provide consulting services to clients who are small business owners that go beyond helping them decide on the best small business retirement plan for their situation.
Industry consultant Cerulli Associates estimates that 20% of financial advisors offer their clients some sort of concierge or lifestyle services. Services of this type not only help advisors cement their value as more than just a numbers person to their clients, but rather as a trusted lifestyle advisor who understands the intersection between their financial affairs and their lifestyle goals.
Custom and Specialized Advice
Some clients need service and advice that goes beyond basic investment advice. Such as explaining any new laws that might impact their investment options. For example, the Setting Every Community Up for Retirement Enhancement Act of 2019, made significant changes to retirement rules that will impact tax-deferred accounts, Roth IRAs, 529 plans, annuities, and more.
Clients have specific needs. Some examples that wouldn’t fall into the “cookie-cutter” mode of advice.
- Help with managing stock options, restricted stock units and similar stock-based compensation from employers.
- Helping clients deciding whether to roll over company stock held in a 401(k) account to an IRA or to take advantage of the net unrealized appreciation rules.
- Help designing a strategy for a client to take withdrawals in retirement including which accounts to tap and in what order.
- Guiding clients through the financial mess that can occur when a parent or loved one dies. Clients are emotional as it is and they might also find themselves being bombarded by their parent’s advisors and could be getting some questionable information. As their financial advisor, you can be a true resource to them at this stressful time in their lives.
An online advisor or one who is solely focused on managing your portfolio may not have the expertise to help clients in these and other complex areas of their financial lives.
In a post on his blog, financial industry expert Michael Kitces cited six value propositions for financial advisors from life planning expert Mitch Anthony:
Financial advisors who work with clients in a holistic fashion can help them get and keep their financial house in order. This goes beyond some sort of paper or online organizer to a level of coaching them to deal with key financial tasks as they arise and on a regular basis.
The mark of any good coach is establishing accountability. A good financial advisor will help keep their clients accountable for the financial actions they agree to undertake.
A good financial advisor will provide an unemotional, unbiased third-party view of a client’s situation. For many clients telling them what they need to hear is your most important function. (For more, see: How to Be a Top Financial Advisor.)
As part of the ongoing financial planning process, keeping clients on track for upcoming financial life events such as paying for college or withdrawing money in retirement is a key benefit of working with a financial advisor.
Financial advisors are a prime source of financial education for many of their clients. It may seem counterintuitive for a financial advisor to want to educate their clients in the areas in which they are providing advice, but experience shows, it is easier to work with clients who understand the steps you are suggesting and who can participate in the process. Additionally, educated clients are less likely to find themselves being the victims of financial fraud from slick-talking financial sales types. (For more, see: Trends Challenging Financial Advisors.)
Any business relationship works better when it functions as a partnership and your relationship with clients is no exception. When you view them as partners and become vested in their success good things happen for both of you. These value propositions offered by top financial advisors are keys to their client’s success and are difficult to obtain from an advisor with a narrow service offering.
The Bottom Line
In this age of the robo-advisor with their low fees and low-cost ETF portfolios, it can be hard for full-service human financial advisors to justify their fees. A great way to do this is to offer value-added, high touch service and advice to your clients. (For more, see: Paying Advisors: What the Young and Wealthy Prefer.)