In recent years, there has been a noticeable trend of clients moving away from large Wall Street firms, such as Merrill Lynch, and “big box,” Registered Investment Advisors (RIAs), like Fisher Investments. While it’s true that these firms tend use the Assets Under Management (AUM) pricing model, charging clients a percentage of the amount of money they manage, the primary reason for the shift is not just the high fees that can occur under AUM, but a lack of comprehensive financial planning services. This shift is significant and highlights the evolving needs and expectations of clients who seek more value and holistic advice from their financial advisors.
The Burden of High Fees
As with many things, it’s often true that you do get what you pay for, but we can’t ignore one of the most compelling reasons clients are leaving AUM advisors: the high fees that are often associated with their services. AUM fees can range from 1% to 2% of the total assets managed, especially on the first couple million dollars, which can add up to substantial amounts over time. Even for clients with sizable portfolios whose fees step down as their assets increase, these fees can easily run into tens of thousands of dollars annually.
What Am I Paying For?
Many clients are beginning to question the value they receive in return for these fees, especially as they get closer to retirement. They are increasingly aware that paying high fees does not necessarily correlate with receiving high-quality or comprehensive financial advice. This realization is driving them to seek alternatives that offer better value for their money, like truly independent RIAs, many of which might also use the AUM pricing model, but provide much wider ranging services, or financial advisors who charge flat, or fixed fees, for investment management. There are also an increasing number of financial planners who are advice-only, not managing money at all.
For example, I received this email from a prospective client while I was drafting this post:
Lack of Comprehensive Financial Planning
As seen in the note above, another significant factor contributing to the exodus from big name AUM advisors is the lack of comprehensive financial planning services. Clients are realizing that, despite paying substantial fees, they are not receiving the in-depth financial planning they need. This gap in service often includes critical areas such as tax planning, retirement preparation, and estate planning.
Frankly, as a former professional portfolio manager, it’s my opinion that many so called, “financial advisors,” are really just people who wanted to be big time Wall Street traders but couldn’t get those jobs, so they trade with client money instead.
Tax Planning Neglect
Tax planning is a vital component of a robust financial strategy. Many clients, however, find that their advisors are not providing adequate tax planning advice. This neglect can lead to missed opportunities for tax savings and inefficient financial structures. Financial advisors who focus mainly on supposed, “investment management,” in a misguided attempt to beat the market often ignore the other aspects of financial planning. Luckily, clients are becoming increasingly aware of the importance of proactive tax planning and are seeking advisors who can offer these services.
Inadequate Retirement Preparation
Retirement planning is another area where many, “big box,” AUM advisors fall short. Despite long-term relationships, clients often find themselves approaching retirement without a clear plan. This lack of preparation can lead to anxiety and uncertainty about their financial future. Clients want advisors who not only help them grow their assets but also ensure they are well-prepared for retirement.
The Value of Holistic Financial Planning
In an industry rife with jargon, the term, “holistic,” has become as big a marketing term as, “fiduciary.” That being said, for lack of a better term, clients are shifting towards advisors who offer holistic financial planning services. These advisors take a comprehensive approach, addressing all aspects of a client’s financial life. They provide tailored advice on tax planning, retirement preparation, estate planning, and more. This holistic approach ensures clients receive the guidance they need to achieve their financial goals.
Conclusion
The shift away from Wall Street & “big box” advisors is a clear indication that clients are demanding more from their financial advisors. Egregiously high fees and a lack of comprehensive financial planning services are no longer acceptable. Clients are seeking value and holistic advice that addresses all their financial needs. Advisors who can meet these expectations are likely to succeed in this evolving landscape, while those who cannot may find themselves losing clients to more comprehensive and cost-effective alternatives.
Resources:
The first decision people need to make when considering working with a financial advisor is whether or not they want investment management as well as financial planning. Not long ago, almost all financial advisors required investment management in order to provide planning services. Now there is another option, known as, “advice-only.” A few good sources to find an advice-only advisor include, Advice-Only Network, & Nectarine.
If you want your advisor to handle investments as well as provide ongoing financial planning for a flat fee, FlatFeeAdvisors is your go-to destination.
Of course, if you’re looking for a local advisor or have specific needs, for example, if you’re a woman in tech, you may want to work with Flow Financial Planning, or, Xena Financial Planning, the greatest number of options can still be found in the fee-only space. One place to start a fee-only search would be on the FeeOnlyNetwork.
If you’re wondering how to interview an advisor, I wrote a post that might help HERE.