A small group of financial advisors want to change the way their profession works.
Most financial advisors provide more than just advice; they manage clients’ investments, earn fees or commissions, that’s how they make their money. But some advisers offer financial advice and nothing more, letting clients manage their own investments and providing advice on a range of financial matters beyond asset management. These advisors charge by the hour or follow a subscription model, providing, for example, several months of advice for a fixed fee.
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“The main benefit of ‘advice only’ is that consumers who have not traditionally been served by the financial planning industry finally have the opportunity to get financial advice without handing over their investments,” says Cody Garrett, Planner certified financier and owner. of Measure Twice Financial in Texas.
These advisors say they are the future. But others are not so sure.
Will it cling?
“I think it’s a lofty idea that has little chance of penetrating the conventional financial planning business model,” says Michael Finke, professor of wealth management at the American College of Financial Services.
Finke and Garrett agree that currently only a very small number of financial advisers offer advice-only services – likely less than 1% – while the vast majority of advisers operate under the AUM model.
Finke is skeptical of the success of the advice-only model, mainly because it does not compensate financial advisors enough to make it worthwhile. Advisors who manage clients’ investments typically operate under a model known as assets under management, or AUM. They may charge a commission on investments or a fee of a fixed percentage of the value of the client’s assets. Commissions may come with conflicts of interest as, for example, the advisor may receive higher commissions on certain investments. A paid advisor generally has no interest in recommending one financial product over another.
Financial blogger Michael Kitces is more optimistic about the concept than Finke: “From a broader industry perspective, I expect advice-only to continue to gain traction with a segment of consumers, the same way as fee-only (dating back to when fee-only was a tiny part of advisors, as advice-only is today).
Kitces notes that different types of advisors serve different types of consumers. Paid advisors, he says, work well for people who “have accumulated assets and want to delegate the management of those investments to an advisor they can trust as an objective advisor (rather than a broker or an insurance salesman), this is where fee-only has long flourished.
But consumers without accumulated assets or who are comfortable managing their own portfolios may want an advisor, says Kitces, “who is really there to give them JUST the advice they want, and who doesn’t have a potential ulterior motive to get them to turn the relationship into one of the ongoing AUMs they didn’t really want to delegate.
Garrett has a three-month planning process and says about 80% of his clients return once a year. It charges $6,400 the first time and $4,800 each time it returns. He says he saves his clients an average of $20,000 a year, compared to AUM advisors. Garrett says his fees are around $320 an hour. He says his fees are likely higher than the average advisor-only fee, which he estimates is “probably closer to $150 to $250 an hour.”
Finke says that while consumers can save money overall, they would likely resist paying a flat fee for advice. He notes that clients are more aware of the amount they pay to planners who only do advice because it’s a separate fee, rather than something that’s built into their asset management.
Garrett says he has more than enough business as an advisor only. “I currently receive more than 20 customer requests per week with this model,” he says. “I’m sure a lot of other advisors would like that level of demand.”
Finke said he could see the idea catch on if, for example, employers offered to provide counseling sessions only to their workers as part of their retirement savings plan. “In that sense, it’s probably the most attractive model for the hourly compensation advisory mode,” he says. “But even then, people would need to seek advice, and not enough people do.”
Advisors say they are the future
Garrett says his typical client is a married couple in their early 50s with $2.5 million in investable assets who want to retire within the next five years. His youngest client, he says, is 30 and the oldest is in his seventies.
Garrett says how to manage investments is only a small part of the financial advice he offers. It provides a list of 25 different categories of advice, ranging from estate documents and charitable giving to life and disability insurance and long-term care funding.
Financial planner Sean W. Mullaney, president of Mullaney Financial & Tax Inc. in California, also offers advisory-only services. He predicts that the AUM model will “die a long, slow death” as advisors cling to this model, while younger clients navigate to advice-only services. Mullaney says he earns the same whether his clients are very wealthy or middle class, so he treats everyone the same. He charges $4,400 for a 90-day planning process, whatever. And when customers come back, fees go down.
How do I find an advisor who advises only?
Cody Garrett has compiled a list of advisory-only advisors which you can find here: measuretwicefinancial.com/wp-content/uploads/2022/03/Advice-Only-Financial-Planner-Referral-List.pdf
The following fiduciary networks also have advisory-only members: XY planning network, I die, Paid networkand Garrett Planning Network.
Additionally, Kitces suggested the Alliance of Comprehensive Planners at https://www.acplanners.org/home.
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