Can offering self-directed financial planning be good for wealth firms?

Adding self-directed technology could open up new business with more client segments

Can offering self-directed financial planning be good for wealth firms?

As investment management becomes increasingly commoditized thanks to new technology platforms, advisors have been turning to financial planning as a service to justify their higher fees to clients. But they may want to consider giving up some ground in that area as well.

According to a study from the Aite Group titled Financial Planning at the Core: Current and Future Developments, financial planning will continue to be an advisor-led process, but adding self-directed technology to complement what firms currently offer could create opportunities with more client segments.

Many clients have complex planning needs that require intense collaboration with advisors and other experts, noted But self-directed planning could be a good fit for the mass affluent and even other segments, said Matt Harris, the head of investment strategy for HighTower Advisors’ division of wealth management.

Will Trout, a senior analyst at consulting firm Celent, was more bullish on the idea. “Any process that can be automated, will be automated, and with that automation will come price competition,” he said. He predicted investment management will re-emerge as an area of focus among advisors who “slice and dice models” and deliver higher levels of “mass customization.”

“Wealth managers really don’t have a choice; if they don’t offer self-directed tools, someone else will,” agreed Eran Livneh, whose firm Personetics helps financial institutions implement artificial intelligence solutions. “Some customers will use them a lot, some will use them sometimes, and some will not use them at all—but everyone wants to have a choice and the option.”

While Livneh pointed to AI’s use in learning customer behaviour and guiding their financial decisions, he doesn’t foresee self-directed planning tools being a substitute for advisors. Instead, it’s something that advisors will add value to.

Self-directed planning’s potential is only as good as the user, according to Kenton Shirk, the director of Wealth Management Research & Consulting at Cerulli Associates. A client may find gathering all the necessary information and integrating it into a holistic, water-tight plan could be too onerous for clients to do themselves. Clients may also need a guiding hand to make decisions, understand trade-offs, and stick to their plans.

“Investors need help in nudging their spending and saving behavior, and there is a huge opportunity for wealth managers to highlight behavior science in their value proposition,” said Sirisha Gorjala, head of Financial Planning, Advisor Software at Morningstar.