Published 9:23 AM Eastern Time
In September 2020, InvestCloud hosted its Elements Virtual Conference, which brought together industry leaders and influencers to examine what they referred to as the four pillars of wealth management technology: 1) a hunger for greater productivity; 2) the drive for faster growth; 3) a call for social consciousness, and 4) a compulsion to race forward into the future. This conference paid special heed to how the onset of the coronavirus delivered a monumental shock to the wealth and asset management industries and hyper-accelerated industry shifts towards remote work, artificial intelligence, and automated company processes. Companies of all sizes were forced to pivot quickly and reinvent themselves to deal with these evolving industry trends. As these changes are expected to be long-term, if not permanent, shifts, it is essential for advisors to proactively adapt to them rather than passively wait for a return to normal.
In this guest post, Craig Iskowitz – CEO and founder of Ezra Group, a financial technology consulting firm – shares his signature Twitter-driven recap of the conference, which featured five key industry experts sharing their analyses of these four central pillars. Craig commences his recap with highlights from Margaret Regan, President and CEO of The FutureWork Institute, and Douglas Contant, President and CEO of the Campbell Soup Company, on reducing the barriers created in remote work while maximizing its advantages. Paul Romer, NYU economist and co-recipient of the Nobel Prize in Economic Sciences, discussed how technology has transformed our economy from the natural limits of physical resources to the eternal growth of ideas and technology.
From there, panel discussion highlights included:
- Data Utilization – In the digital age, a proactive advisor is an advisor that uses data well to recruit clients, anticipate life events, and streamline processes, a feat which is made infinitely easier by combining data and AI technology, and frees up the advisor to maintain a deeper focus on their clients and growing their firm;
- Impression Management – Hard skills can help a firm grow far, but interpersonal skills, even one as simple as being authentic, are critical to connecting with clients over video or in-person;
- Wealth Management – As while the typical wealth management advisor is currently swamped with choices, often juggling five to 15 financial services at once, there is a great need to simplify and streamline their services under larger, more variable platforms, paying special attention to transparency, hyper-personalization, and high responsiveness to allow for the best experience for them and their clients;
- Retirement Personalization – Using AI in smart retirement planning has been getting a lot of hype because of its potential for education and personalization, but it often takes a technologically savvy advisor to make wise decisions – and to optimize their efficiency – while using AI tools.
True to the themes of the conference, the Elements Virtual Conference leveraged technology to its advantage in light of the pandemic. It spread over multiple days and featured a wide range of topics and speakers from outside the industry.
Ultimately, the Elements Virtual Conference embodies the future of the wealth management industry: leveraging technology, flexibility, and a plethora of expertise to deliver unique, applicable information that financial advisors can use to make wise decisions about helping their clients and growing their businesses.
Providing financial planning services takes time. A lot of time. By some industry benchmarking studies, the typical financial planner spends 15-20 hours, and sometimes more, just to gather data, analyze and produce a financial plan, and then deliver it to the client. Which means, not surprisingly, that it’s often necessary to charge clients a substantial financial planning fee to recover the time investment. Especially as financial advisors are increasingly shift to AUM fees and other fee-for-service models, rather than earning a (potentially sizable) commission for the products implemented after the plan is delivered.
Yet the reality is that with the rise of the AUM model in particular, and its recurring revenue potential, it’s actually not necessary to charge upfront for financial planning to get paid for it. Instead, as long as delivering financial planning still provides value, deepens the advisor-client relationship, and improves long-term retention, it’s entirely possible to be “paid well” for financial planning without charging for it separately at all. Because even a relatively small change in client retention rates can produce a sizable ROI for putting in the time and effort to do the financial planning in the first place.
In fact, charging separately for financial planning actually introduces the risk that clients will have “sticker shock” about the cost, and choose not to purchase it at all, which means ironically that charging for financial planning can actually reduce the number of clients who engage in it. By contrast, bundling financial planning into an AUM fee changes the client psychology, subtly encouraging clients to take advantage of the service by making it already included… knowing that clients who do engage in financial planning will be more likely to stick around for the long run anyway.
On the other hand, there is a simple appeal to the “purity” of having clients pay for financial planning at the time they receive financial planning. Nonetheless, the reality across a wide range of industries is that it’s quite common to bundle services together, in a manner that makes some clients more profitable and others less so in any particular year, as long as it averages out over time. And at least with a recurring revenue model, it’s the client’s less-time-intensive years that help to cross-subsidize the more-time-intensive ones – as opposed to a commission-based model, which the profitable clients cross-subsidize other clients instead.
Of course, it’s still impossible to offer “free” financial planning, that is paid by AUM fees over time, for clients who don’t have assets to manage in the first place; for those clients, a fee-for-service model is the only option. Yet for those who do have other means to pay, and other business models to reach them, it’s important to recognize how an advisory firm really can “give away” financial planning and still be paid well for their efforts over time!
