In this podcast I talk with Bob Veres about the future of the industry, and specifically, financial advisor fees. We talk about what the value of a financial advisor is going to be in the future, what the current sources of confusion to the public are, and what that all means for how financial advisors are going to be able to charge their clients for service.
For those of you who are new to my blog/podcast, my name is Sara. 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!
What the biggest misconceptions are currently
According to Veres, the revenue model and the value proposition are the most confusing things for the public when it comes to financial advice.
The history of the planning profession has seen, over and over again, real professionals (note: financial advice is not a profession, but there are certain people who are going about their work as professionals) attempt to draw a clear distinction between themselves and salespeople, only to have the brokerage world blur that distinction and confuse the public about who is who all over again.
- Providing financial plans vs. canned financial plans with a sales agenda.
- Fee-only vs. fee-based.
- Fiduciary vs. ‘best interest.’
But… Fee for service (and only fee for service) is a haven where the sales agenda mimicry cannot follow. No longer will ‘asset gatherers’ and salespeople in the brokerage world be able to wear the sheep’s wool of the real professionals.
The future of financial advice
Veres believes that the value proposition for a financial advisor has to be something other than, “I can manage your money.” Although this is an easy sell, but is becoming increasingly commoditized. He sees service eventually moving to an advice-only model (purely advice, with services like investment management attached) which requires some adjustment. The industry is then tasked to create a financial advisor fee model that focuses on advice.
According to Veres, this would clarify who is a professional and who is not.
Niche marketing will play a big role in the ability to improve your competitive advantage and show skill to your target prospects. Please see my podcast on weird, wacky financial advisor niches if you want to learn more.
Veres believes the general practitioner who purely manages assets is not going to survive the next generation of clients. He has surveyed many younger people who believe that nobody can beat the market and feel that managing their assets is not the primary value of a financial advisor. But they do have questions like:
- How do I set up a defined benefit plan?
- What about my mortgage?
- Are my insurances working together or am I overpaying?
In the future, the value proposition needs to be advice. And so what does that mean for the fees that financial advisors will charge?
Let’s talk about it.
What all this means for financial advisor fees
In Veres’ view, in the future the model for financial advisor fees has to be something other than, “How much are you going to charge me?”
“I don’t know, depends on how much you’ve got.”
All of this leads to the conclusion that fee for service is an inevitable part of the planning profession’s future, and the AUM model will someday be regarded as a transitional revenue model from commissions to fees. Whether we are moving to monthly subscription fees, quarterly flat fees or hourly is still to be determined, but different firms will adapt to the fee structure that best fits their specializations. Veres believes the competitive forces are moving slowly in this direction, but will accelerate at some point in the future (but he doesn’t know when.)
(that’s Bob Veres’ view).
I have other views on what financial advisors fee trends are. You can check them out in these videos below.
Sara’s upshot on financial advisor fees
What’d ya think of my blog on financial advisor fees? Was this helpful?
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