More signs point to planning as the way forward for advisors

More signs point to planning as the way forward for advisors

More signs point to planning as the way forward for advisors

For financial advisors whose compensation is based on investment management, the alarm bells are getting louder. As they face growing prospects of losing client assets, advisors are realizing that it takes more than investment advice to survive; there needs to be a greater focus on planning.

That realization appears to be firmly taking root in the US. According to a new report from Cerulli Associates, 40% of US advisors’ outflows consist of regular income withdrawals taken by investors during retirement. With 52% of their clients now between the ages of 50 and 69, they need to secure assets from the next generation — a daunting challenge, as only 29% of advisors were found to engage in intergenerational planning.

At the moment, the industry seems to be more concerned about the growing possibility of market turbulence after a long-drawn equity bull run. Around half (52%) of advisors are reportedly focused on downside risk protection over the next 12 months, with more turning to financial planning as they review the risk exposure in their clients’ financial assets, real estate, insurance coverage, and other aspects.

Cerulli has found an increase in the degree to which advisors offer comprehensive, ongoing financial advice. In 2013, advisors said they provide the service to 32.9% of their clients; by 2017, that had increased to 49.6%. The shift has been driven by trends including competition from lower-cost digital investment platforms, advisors’ increased awareness of their fiduciary duty and liability, and clients’ increased sensitivity toward fees.

Aside from that, 64% of advisors agreed or strongly agreed that the demand for planning among clients is on the rise. The feeling is particularly strong among large practices with at least US$500 million in AUM, where a high-net-worth focus is most prevalent.

The report also found near-universal agreement on the value of planning, as 93% of financial-planning specialists consider stronger client relationships a major benefit of financial planning. The practice fosters conversations about a client’s current financial situation, as well as where they see themselves in the future. By guiding clients competently and compassionately through decisions affecting their children, spouse, elder parents, and work, advisors can build deeper trust and relationships that can better withstand market downturns.

The report also found that financial planning is useful in uncovering unaddressed gaps in clients’ financial lives. Clients may neglect or deliberately avoid talking about some subjects because they are uncomfortable to bring up. Estate plans, for example, could turn out to be inadequate or outdated, or the clients may overlook new liabilities and risks from recent life changes.

“While offering planning to clients can help differentiate advisors from digital-only investment management platforms, they must be prudent in how they expand their services,” the report said. For advisors, focusing on the right clients — those who actually require financial-planning expertise — as well as finding efficiencies in their practices to ensure profitability will be crucial.


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