In this podcast I interview Bob Veres about the future of the financial planning profession. According to Veres, financial planning is not dying but rather the future of the financial advisor profession itself.
Are you ready?
For those of you who are new to my blog/podcast, my name is Sara. Currently, I am a CFA® charterholder and I used to be a financial advisor. I have a weekly newsletter in which I talk about financial advisor lead generation topics which is best described as “fun and irreverent.” So please subscribe!
Why Bob Veres is a big fan of financial planning
In this podcast we discuss:
- What financial planning is
- How to market a financial planning practice
- Why financial planning is so important to a wealth management practice
- The future of financial planning
- Financial planning trends
- Intergenerational trends and financial planning
- What the future generations will want from a financial advisor
- How the economics of a financial planning practice work
- How financial planners charge
- Fee-only, hourly fee, and flat fee advisors
As an industry veteran, Veres recalls the days when the fee-only model was first coming into popularity. He said it was met with the same resistance as the financial planning model is. It’s a perspective you don’t necessarily hear. I really appreciated Bob Veres’s wisdom on the topic of financial planning and hope you’ll enjoy the show!
So here’s my interview with the great Bob Veres
0:00:00.2 SARA GRILLO: I’m here with Bob bears today. Okay, what’s up financial advisors? My name is Sara G. Welcome to my podcast, I do by-weekly podcasts on the topic of financial advisor lead generation, and I’m a bad ass in the best, and I’m better than the rest of… Forget about them. Hallelujah. Amen. Advisors, don’t hide just smash the subscribe and let’s ride. So today, I’m Bob Veres here, and he’s gonna be talking about the future of the profession. Bob is the publisher of Inside Information, and he’s been writing about financial planners for 37 years. Hey, welcome to the show.
0:00:48.8 BOB VERES: Well, thank you. Your modesty, I wish I could manage that.
0:00:53.7 SARA GRILLO: You were a Physics, Math and Computer Si major in college. Right, and then you got like a BA in English literature with a minor in mathematics and MA in English literature.
0:01:14.9 BOB VERES: Typical path you take through college pretty much…
0:01:18.1 SARA GRILLO: I mean, I just was… Were you pre-med as well? Do you have a law degree?
0:01:23.8 BOB VERES: No, I wanted to be an astronomer and write science fiction novels, and I was playing college football at the time, and I also ran track at the college at Union College. And my dad died, and I switched my major to English, which was my first love, but I continued taking courses in my second and third love, so I was well prepared when I came into the financial services world because the mathematics is basically easy, it’s algebra, and so I was able to master the mathematics, which a lot of writers are not really up on.
0:01:57.8 SARA GRILLO: So tell us about your path or maybe you start with this. Where did you grow up? Are you from upstate New York, where college…
0:02:06.6 BOB VERES: Well, I grew up in Syracuse, New York, and so I always get depressed in the winter, even though I live in San Diego, and now I still started to get depressed right around now this time of year and moved to New York City for high school, and there’s kind of an interesting story how I got to this profession, but when my dad died, my mother moved down to Georgia and I moved down there with her and I graduated from the University of Georgia, and here I was at George I became… In Atlanta, probably the best. I was the writer in Atlanta where if you’re an editor, editors are all crazy, by the way, you look in magazines, in case anybody… People think that you…
0:02:46.3 SARA GRILLO: Bob Huebscher is not crazy.
0:02:52.0 BOB VERES: Yeah, it pretty much he is. If you knew him well, .. Well, they’re crazy in a certain particular way, they have really interesting articles that they would like to have written, and most of those articles they’d like to have written are almost impossible to write without losing money, it takes like three months to write them, and so that was the guy in Atlanta, who the editors would hire for those projects that they couldn’t get anybody else to do, and I was doing that for a while, and then it was hired to be the editor of a magazine and esteemed magazine called air cargo world, and discovered that I was a pretty good editor, I kind of enjoyed it, and seven months later, I was hired to be the editor of Financial Planning Magazine, and I told them I’ve never even balanced my own check book. I’m probably not capable of doing this work and they said, You are a boy, you just come on. And so I had this learning curve that went straight up, it went… I’m still climbing a learning curve, there is never going to be a time when I feel comfortable that I know what everything is going on in this profession.
0:04:06.3 SARA GRILLO: So it sounds like you’re pretty passionate though about writing and reading and literature, and I’m passionate about the profession
0:04:15.2 BOB VERES: Is one of the… Well, it’s the newest profession in our ecosystem, we have accounting and medicine and law, and financial planning is going to become the newest and arguably the most important profession for the average consumer, you know, a doctor will keep you alive, but the quality of your life is going to be largely determined by your financial planning relationship at some point in the future, and I wanna be part of the process that makes that happen, that makes that profession come alive in the world and improve the lives of people. There’s a much longer version of that, but that’s a short version.
0:04:56.5 SARA GRILLO: It sounds like you view financial planners, financial planning is not just an add-on to the services that financial advisors give their clients, but something that’s gonna become increasingly important in the future.
0:05:15.3 BOB VERES: Yes, there’s… The dynamic we’re in right now is that we’re going through at least three and maybe four evolutions in the profession, evolution on, of course, is from sales to financial planning, from sales to asset management, I apologize. And that was a big transition. I remember when that happened, the people who were doing asset management people thought they were crazy, they had this new revenue model called aim, and they weren’t sure how to make at it, and those people practically starve before they got their feet under him, but it was a great shift in terms of benefiting the end consumer, it wasn’t sales anymore, it wasn’t predatory, and now we’re going through from am to financial planning, a is becoming… Our asset management is becoming somewhat commoditized, and financial planning is becoming a lead service, which is basically helping people navigate through the most conical, complicated economic system that the human mind could possibly create. And we make it even more complicated. I mean, we’re gonna go through another text change shortly. I have a cartoon that I published one in my newsletter that has a happy news commentator saying to the camera, he says to the audience, today, Congress made simplified the tax system by adding 100 more pages to it.
0:06:45.2 BOB VERES: And we’re gonna do that again. And then the next iteration, the one that’s kind of on the cutting edge right now is from financial planning to something that’s more holistic… Do I call it coaching? You might call it life planning, you might call it personal planning, but instead of me being a financial planner who gives you top-down advice, I co-create the financial plan with you and I help you coach through the life challenges to reach your goals, and you articulate goals and some of those goals might not be financial, and that’s where the… I think where financial planning finally achieves his promise, that’s where financial planning… We move into what I call the age of… What I called it this, I should remember what I call it, the… The personal satisfaction, the age of instead of us being creatures that have our nose to the grindstone, we become creatures who fulfill who we are as God, him or herself created us. What are we here for? And that’s a pretty complicated transition, most people can’t make that transition without help, financial planners will help people make that transition, but we’re still in the very early stages of making that last shift, that evolutionary shift in the profession.
0:08:12.4 BOB VERES: The question is, what’s the [wealth management} revenue model?
0:08:14.7 SARA GRILLO: Okay, I was gonna get to that, but okay, I gotta tell you though, that I see a lot of financial advisors that totally disregard financial planning, not even doing planning for for their clients, they’re basically holding themselves out as financial advisors on the investment side, and if they do planning. It’s an afterthought or an add-on. It’s not a set
0:08:44.5 BOB VERES: That’s probably the center of gravity in the profession right now.
0:08:48.6 SARA GRILLO: Right, and so it’s hard for me, I see what you’re saying, but I gotta tell you that the average financial advisor that I deal with, it’s still getting paid fees for AM, and that’s how they define themselves and they look at themselves is, I don’t wanna do the planning, they keep it to a minimum. If there’s something that comes up, I’ll work with the person’s accountant, but that’s the extent which a lot of these farms are involved with financial planning for clients to the businesses to… If I wanna discuss the revenue model, because I feel as if until that changes, until they start to really get squeezed and they can’t afford to take a vacation to an out with their family every year because they’re getting their revenues… Not what it used to be. I feel like until that happens, I don’t know that they’re gonna wanna make the shift to planning.
0:09:46.2 BOB VERES: So you’re traveling in the ocean and what is your guiding star to what clients most want and most need? Most desire. And so back in the day when everybody was selling, and financial planning came along and everybody was selling more efficiently, and then some people started going fee only and doing assets in our management because that was what their clients wanted, they went through a very difficult period where they had to invent their revenue model, but it was a better mouse trap, it was what clients wanted, and they followed that star and they became the most successful advisors in this profession, and they’re the people you’re talking about, that star is now what… You continue following that star. What do clients want right now, clients want a better life. They want financial die. They want your professionalism. Most of the younger people I talk to, the Gen Y and Gen Z, I say, Would you pay 1% of your assets a year for someone to manage your assets? And they laugh at me. They understand better, I think, than the baby boomers do, that there really isn’t anybody who can get a lot of alpha, squeeze a lot of alpha out of the market, and so you’re not really paying for getting a better return, what you’re paying for is the professional advice, they’re willing to pay for that professional advice and the subscription model, and the flat fee model is coming along, and that’s gonna be the Gen Y and Gen Z model, and the firms that are charging a…
0:11:26.8 BOB VERES: We’re gonna have to adapt to that. They have to follow that star, that star is calling them to something beyond simply managing assets, now that doesn’t mean they’re not having a great business right now, what I’m here to tell you is where it’s going.
0:11:42.3 SARA GRILLO: But how do you see life… For the 52-year-old, 55-year-old financial advisor that has been in the business for 20 years, has 100 Million, 200 Million under management, and they’re making a good living, the clients are reasonably happy, their clients are around their same age… You’re a little bit older. Do you see them being affected by this… Yeah, of course.
0:12:10.6 BOB VERES: But they may be able to write it out, they may be able to go to 65 or 70 and their clients will be 65 or 70, and then their clients will start dying, and they won’t have a model that is… If you notice, I’ll say it a different way. I talk to a firm in Minneapolis about this, and I said, Take a look at your average age of your clients and the growth of the assets of the existing clients, and they went back and they did this and they were quite interested in what they found, they found that their average client age was growing at roughly one year a year, they found that the average assets per client for existing clients was declining, they were bringing on older clients, the same ages, their existing clients who are a little bit wealthier, and that was how they were making your money, and I said, Is this sustainable? And the answer, of course, is no, it’s not. Unless you just decide to retire when your clients don’t need you anymore, when they all die up, so what we need is a model that’s going to sort the next generation and the one after that and the one after that, those advisors are gonna do just fine and I tell them, what I would do, what I recommend is that you continue to serve your baby boom advisors with an A model, if they’re happy with it, and you start a different flat model for younger clients and you bring them on because you’ve gotta replenish your client base, you’ve got a o, bring on new people.
0:13:46.0 SARA GRILLO: Or also the financial advisor hourly fee model. What do you think of the hourly pricing model?
0:13:53.2 BOB VERES: I think it’s probably the least desirable model for consumers, it’s probably the best way to fit the effort you put forth to… What do you charge? And I think people should charge a lot because the expertise requires a lot, but I had a cartoon, another cartoon and my newsletter, and it showed a client sitting down across from the advisor and the advisor is sitting behind the desk, and the advisor is saying, we have a new way of charging, and I think you’re really gonna like it, and behind the chair is a meter, and I think most clients don’t really want that meter running, they want to know what they’re gonna be paying, they wanna know that it’s gonna be X number of dollars a year, and that I think is the flat fee model. I think that’s where it’s going. Only fine, there’s the nine wrong with our cpas charge hourly and they seem to do pretty well.
0:14:48.8 SARA GRILLO: Well, yes, I’m thinking of my accountant when I talk about the hourly model, but I’m also thinking about the anxiety I have with my accountant about every month wondering what he’s gonna build me for, because there’s very little transparency.
0:15:03.7 BOB VERES: There needs to be clarity, and I think that’s why the AUM has the advantage of being clear and not being easy to translate into actual dollars, you’re paying 1% of AUM or whatever… So I
0:15:18.7 SARA GRILLO: Was at 1%, right?
0:15:20.6 BOB VERES: Yeah, that’s right, 75 basis points, less than 1% even better. Whereas a flat fee you can charge… Mike’s talks about salience with a flat fee, you’re billing out of the portfolio, but they know what you’re paying, and so it’s a little easier for them to wonder about the value of your services compared to what they’re paying, but the same token flat fee gives you a way to charge your less wealthy clients appropriately, when I talk to… I do some consulting and I talk to advisors and I say free is spreadsheet. And on the spreadsheet, I want you to put down how much each client is paying you based on AUM, of course, and then how much time you’re spending with each client and how much time your associates are spending with each client and multiply those by an appropriate… About 300 an hour or 400 an hour or whatever it is. And then take all your office expenses and divide those by a number of clients and put that in in their column, so everybody’s paying for your overhead and then handle those expenses off and then subtract those expenses from what they’re paying you, and everybody…
0:16:31.3 BOB VERES: I’ve ever talked to says that 60%, 80% of their clients, that’s a negative number. They’re actually, based on that calculation, they’re losing money on 60% to 80% of their clients, so what I say is, Talk to your clients who have the biggest negative number and say, we’d like to move you to a flat fee model, and we think you’re gonna like this way of us charging, but we’re gonna be charging you more because you’ve been a lost leader for us, and the surprising thing is that most clients go along with that, if they don’t… You erase a negative number on your spreadsheet, if they do, they’re now profitable. And so it’s an easy way for you to practice. Charging this new way, now, what becomes complicated, of course, is you’ve got clients who never call you who have 12 million under management, and they’re obscene profitable on that spreadsheet. The question is, what you do about them… And nobody has come up with a great answer. My answer is, you treat them the same as everybody else, you put them on a flat fee, but you don’t have to do that first, you don’t have to do that immediately, you don’t have to do that until there’s a market pressure that makes you do that.
0:17:45.2 SARA GRILLO: So talk to me about the changes you’ve seen in 2020 with the pandemic, and how you see that playing out in the future.
0:17:52.5 BOB VERES: Oh, everything’s just the same businesses, everybody working remotely, working with their clients by some call rather than face-to-face, markets go down dramatically, and then suddenly they go back up again, the markets decouple from the underlying economy, it’s just, you know… But it’s just the way everything usually goes, the biggest change I’m seeing is the clients, and I think we’re all surprised by those clients learned how to use some technology or Google Chat or whatever it faced a screen relationship and adapted to it the same way advisory firms did. And now it’s going to become, as we go forward, at a normal part of your client relationship, clients, they may wanna meet with you every once in a while, but most of the time they wanna do as a quick zoom chat instead of an hour meeting where they go to the portfolio, which is pretty boring, I think you…
0:18:49.9 SARA GRILLO: You gonna worry about the traffic and you drive there and you got to disrupt your whole day.
0:18:54.4 BOB VERES: Yeah, instead of that, you just do a quick Zoom call from your house, maybe while you’re getting dinner, and then the advisor says, What’s going on with you? What can I do to help? What… Thinking these days, and it’s, yeah, it’s a much quicker call and it doesn’t require a lot of travel, a lot of… But the interesting thing about that, there’s two interesting things about that that are kind of intertwined with each other a little bit, is that you can now work with and market to clients who are on the other side of the Mississippi. You can work with anybody. I say, you can work with somebody on the moon, and so you don’t any longer have to confine your marketing efforts to people who are within a 40-minute drive of your office, and a lot of advisors already kind of knew that because they were working by telephone mostly with people who had moved away from their market, but they were still working on these people, that’s a fairly normal client base these days now, but the marketing efforts were never expanded, but at the same time, every single advisor in the country can now market in your territory.
0:19:59.8 BOB VERES: And now you’re competing with every other advisor in the country, and the question I ask people is, do you have the most compelling value proposition of any advisor in the country? If not, you’re in trouble.
0:20:15.8 SARA GRILLO: I still think though, that people would rather work with an advisor that is within an hour of their home…
0:20:27.0 BOB VERES: Alright, let me propose something to you.. You’re a young dentist coming out of dental school, and you’re looking around for a financial planner, you live right next door to a financial planner who does financial plans and manages assets and an AM basis. On the other side of the Mississippi, your search turns up an advisor who specializes in Janis, who are leaving dental school, they help negotiate your financial, your arrangements with a new dental practice, they know the idioms of the dental world, they know the jokes of the dental world, they advertise and dental magazines, they attend dental conferences, and they understand the tax challenges of an emerging dental practice. Now, you’re gonna decide which financial advice are you gonna work with, am I gonna work with that person across the Mississippi on a face-to-screen basis, or am I gonna work with as a generalist who lives right next door, and they may decide to work with the generalists, right next to her, but I’m guessing that nine times out of 10 that they’re gonna work with a person who specializes in them. Yes, absolutely. So what happens then is you get advisory firms all over the country who are creating these specialized services, people call them niches, but it’s really a professionalism, it’s kind of like you wouldn’t call a person who does knee surgery, knee replacement surgery has a niche that’s not a niche, that’s a specialization in a particular kind of part of the medical profession, and I think the same thing is evolving in the financial planning profession, where you will have a niche which is really a specialization, and so I pretty much everybody else.
0:22:26.2 BOB VERES: And so people will search for someone more or less like that, it’d be great if that person was nearby, and there might be two or three in the country, and one of them is nearby and you’ll choose that one.
0:22:38.9 SARA GRILLO: I totally agree with it. And one of the things I do advocate for with the financial advisors that I work with is them creating a kind of a niche… The problem is that so many of them are hesitant to do this because they’re worried about who they’ll lose… Well, there’s no reason lose anybody. They think that if I go out and I say I’m the financial advisor for people who just graduated from dental school, they are so terrified and worried, even though they’ll gain so much credibility, they’ll have so much stronger the value proposition, these advisors are terrified that they are going to lose the person next door to them, that sees their bulletin, or it sees their blog on their website, or that talks to them at the networking function, when they say I’m an advisor for dentist, they are so worried that they’re gonna lose that person.
0:23:34.2 BOB VERES: But the greater terror, if they’re that afraid they’re gonna lose their clients, they must not have a great relationship with those clients, and I think part of the way to strengthen that relationship is to get more deeply involved in their goals and desires, which goes back to the first thing I was saying that I think there is… And you say I have a particular specialty in dentists, but I have clients that I’ve worked with for years that are really important to me, and I’m giving them… The very best service I have, I just happen to have a specialty in such and such, I work with a general practitioner who also happens to specialize in dermatology, but he is my general practitioner doctor when I go through the medical system, and he’s the person who will refer me and recommend me out, he just happens to have another… So I don’t think it’s not an impediment to me anyway…
0:24:37.8 SARA GRILLO: Right, I’m always approached by people, and I’m focused on financial advisors, but because I’m out there so much, I do get a fair amount of people that come as a referral from one of my existing financial advisor clients, and I say, I’m like, I’m not focused on… This it, for example, right? I get these ITIL. I’m like, I’m not focused on your industry, but they’re like, But I like the way that you do business, I like the way that you think… You see what I’m saying? So I think that’s the same for financial advisor, it’s like if they’re gonna look at you and say, I’m not crazy about the fact that you seem focus on dentists and I’m not a dentist, then what failed there was something in the way that you presented yourself that was incompatible with them, or did not impress them… About you as an advisor.
0:25:25.7 BOB VERES: I think that’s right. I think it’s right. A specialty will eventually emerge by attrition, you’ll have clients who will work with you and then they age out, every advisory firm I’ve ever talked to has legacy clients that were the first people who started them with them and help them build their business. That are not really appropriate for who they are and what they are right now, this is just taking that to the next step.
0:25:53.2 SARA GRILLO: Yeah. Okay, well listen, I think we’re gonna wrap here… Any closing thoughts? I always like to give people like three things to remember from this podcast, what would you say…
0:26:08.6 BOB VERES: The first thing is to recognize that there is this migration path, this evolutionary path the professionals are taking, and to understand where that guiding star is, that guiding star is what clients want from you, continue to pay attention to what they want from you. What would be best for them? Whatever would be best for them is the most important thing you can offer as a value proposition to the marketplace at large, and what I would argue what they want is a better life, what could be better than a better way… Take my money. Give me a better life. And so helping them achieve their goals, one of the things I talk about is the performance statement of the future is gonna be achievement of goals, what goals did we identify at the beginning of this year that you have achieved, and what goals have you achieved since inception of our relationship, and if they’re achieving their goals, and of course, the goals will change as you achieve something, you have to set more… There’s always in their mountain, you climb this mountain, and then you look out there and there’s always more mountains out there, if they’re achieving their goals, they’re never gonna leave you another…
0:27:21.9 BOB VERES: And I’m gonna give you a marketing story because you’re a marketing maven and the audience is probably interested in marketing ideas, and you got me on LinkedIn, which is really annoying because now I have to like check link in LinkedIn and stuff.
0:27:37.2 SARA GRILLO: I’m so happy to hear that you’re on LinkedIn now, and thank you to Blackwell. Hear from my lawyers. And by the way, everybody, if you have not read47 financial advisor LinkedIn messages, please click the link in the show notes and go ahead and smash that link and get it. Okay, Bob. So yes, now, marketing story… Go ahead.
0:27:57.4 BOB VERES: I’m a big believer in stories, telling stories, and so what I would do is take some successful client stories now, if you don’t have any success, client success stories, that’s a problem and you should work on that first, but most advisors, they have with you really good client success stories, names redacted, tell those stories on your website, maybe in video, but certainly in written form, here was the presenting symptom, here was the type of client that I worked with, and that communicates a few things, one is, what kind of clients do you like to work with what kind of challenges do you like to address, and here’s a happy outcome, these are the kind of happy outcomes that we can produce for you, so a client can come on their self, decide whether you’re a fit, and then look at the possible future success story that they could be enjoying before they ever get online with you… Before they ever call you.
0:28:54.5 SARA GRILLO: Yeah, I love it is. These are great ideas. Okay, Bob, so listen, how can people… And I know a ton of people already are on inside information or the service that you publish, how people sign up for that if they haven’t already.
0:29:13.5 BOB VERES: My website is bobveres.com. There’s a couple of interesting things. First of all, the material you find there is more in depth and more relevant than anything you’ll find anywhere else, because I’ve been doing this for 37 years, but you have to pay for it, and that’s a big hurdle for a lot of people, pay for information, how would I do that? But the interesting thing is, I’ve always provided no questions asked money back, rant. So if people wanna try the service and they hate it, or they feel like they’re not getting value out of it or whatever, typically, there are as many as 10 articles, and it’s never the same to the 10 articles that any advisor will find in there that will… Far more than pay for the service because it opened up a door for them in some way, and the service cost to… For initial people, it caused 349 for the first year, and if you don’t get 349 a value out of it in your business life, then you’re not doing it right, and if you don’t… And if you’re not doing it right, I refund the money.
0:30:26.2 BOB VERES: That’s the easy thing. I don’t want people subscribing to a service, they’re not getting value out of her. 0:30:31.4 SARA GRILLO: You… Yeah, well, that’s great, I’m gonna put the link in the show notes, go out, well, this… It was great having you and everybody, please subscribe, rate and review this podcast and I’ll see you in the next one. Thanks, everybody.
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Podcast transcript is edited from original recording.