Advisers must expand beyond financial planning for future to tackle life today

Live for today.

Coming from financial advice professionals committed to planning, that message seems almost heretical. But participants in the “Innovative Adviser Roundtable” at the recent Icons & Innovators’ Innovation Summit in New York believe the advisory business must increase its emphasis on helping people live more satisfying lives now rather than focusing largely on the future.

And that shift, they say, should have a significant impact on how advisers are compensated.

Currently, most advisers are compensated by fees based on assets, with a planning focus on helping clients prepare for their post-working years by building an adequate nest egg, which ideally leads to growing adviser income over the course of the relationship.

Although the retirement focus is key, advisers said it overlooks important financial concerns in the present, as well as many in the future. At the same time, a model based on assets under management precludes serving younger and less affluent clients.

Addressing the kinds of advice advisers can help with, Carolyn McClanahan, founder of Life Planning Partners, said some involve decisions that seemingly have no financial connection.

“A decision about when a parent or you yourself should give up your driver’s license, for example, can have important financial ramifications that no one is thinking about,” said Ms. McClanahan, who is also a practicing physician.

Today, advisers often give “a false sense of what the future holds,” she said. “We have to help people become more resilient and get the most out of life now.”

The other panelists, Greg Friedman, president of Private Ocean; Sheryl Garrett, founder of the Garrett Planning Network; and Sheryl Rowling, principal of Rowling and Associates, agreed with her view of the industry’s future direction.

They believe investment management is becoming commoditized and that technology will replace practically everything but person-to-person counseling.

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“We have to evolve in the way we serve clients,” Ms. Rowling said. “We all pretty much do the same thing with investments: managing through diversification. But robos are doing that, so we really won’t be able to make a business based on that anymore. We’ll have to provide more appropriate and better services to clients, and I see that including life planning, career planning and planning for giving and receiving care. We must focus on living for today as well as saving for tomorrow.”

More efficient processes

To do that requires advisers to adopt technology that makes their processes more efficient.

“The hub of my business is my [customer relationship management system], which keeps our entire office in the know,” Ms. Rowling said. “We look at software as a replacement for every repetitive task we do.”

Referring to popular tools such as Skype and Dropbox, Ms. Garrett said the widespread use of technology by the general public “makes real-time interaction more possible” and easier.

But while many tasks can be automated, or even replaced by technology, the fundamental reasons people seek advice can be addressed only by humans, she said.

“Sometimes we get way too wrapped up in technology,” Ms. Garrett said. “The money management component of the business is being taken over by technology and becoming commoditized because it’s relatively simple. What’s difficult is helping someone who’s immobilized take an action that’s in their best interest.”

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Because advice is truly the core value that advisers provide, it’s time that the business arranged its economics so that “everyone pays for advice, of which investment management is a part,” rather than paying for investment management separately, Ms. McClanahan said.

“I agree we have to evolve into a new fee model,” said Greg Friedman, “but I’m struggling with how you get there.”

Time is money

Ms. McClanahan and Ms. Garrett offered the solution they have long employed: fees based on time.

The Garrett Planning Network has provided hourly based planning services since its founding in 2000. Ms. McClanahan switched to a flat-fee model 10 years ago.

“Our clients seek us out because of flat fees, which can vary depending on the complexity of each client’s needs,” Ms. McClanahan said. “Our first discussion with a potential client takes about two hours, in which we learn what their life is like, how they spend their time, what issues they face and whether or not they are organized. We take that into account in determining our fee, because the more complicated it is to deal with someone, the higher the fee.”

She said her firm manages $220 million in assets, with an average client AUM between $2 million and $3 million, and that her time-based approach yields the same or slightly more firm revenue than asset-based fee models.

“In 2008 and 2009, we gained clients, and they didn’t ask us to lower our fees,” Ms. McClanahan said.

She’s found that people at all income levels value advice when confronting issues at major life turning points and when they are just not sure what to do.

Evan Cooper is a freelance writer.