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Entering the second half of the year, registered investment advisory (RIA) firms and broker-dealers typically begin to look at budgets to decide where to trim costs and allocate resources.
Managing budgets is all about balancing priorities — meeting today’s needs while investing in areas to help firms meet long-term growth goals. One way to ensure advisors achieve both priorities is to invest in tools that support comprehensive financial planning.
According to a report by Cerulli, the number of investors willing to pay for financial advice has grown by more than half over the past 15 years, from 38% in 2009 to 63% as of November 2023.
Traditionally, financial advisors have charged for financial planning as part of a larger assets-under-management (AUM) relationship. However, since younger clients often haven’t amassed enough assets to support an AUM-based model, they find themselves in a precarious situation, without access to comprehensive financial guidance that can help them at a pivotal moment in their lives and careers.
For millennial and Gen Z clients, a fee-for-service model isn’t novel. Instead, it fits how most younger people manage their lives, paying monthly subscriptions for everything from TV, movies, and music to meal planning and dating services.
Fee-for-Service Is No Fad
Savvy financial advisors recognize that fee-for-service planning isn’t a passing trend but an enduring facet of the wealth management industry that will continue to increase in usage as older generations pass on their wealth to their children and grandchildren.
These advisors — many of whom are young themselves — want to begin building and nurturing relationships that are likely to convert to an AUM-based model in the future. Without the technology to offer fee-based financial planning, firms not only miss out on a lucrative revenue stream, they forgo an essential tool for advisor recruitment and retention.
Unlike productivity and workflow tools, fee-for-service technology delivers an immediate return on investment. Last year, our technology helped advisors generate over $500 million in lifetime fee-based financial planning.
Beyond adding new revenue, helping to build relationships, and serving as a recruitment/retention tool, fee-for-service technology can help firms operate more efficiently. Firms using these tools no longer rely on several staff members to handle administrative tasks such as mailed checks and multitudes of spreadsheets. They can redeploy those employees to more critical, revenue-generating activities.
A Tool to Help Manage Compliance Concerns
Additionally, this type of tool can help firms avoid costly mistakes.
With compliance features, firms can easily review financial plans in real time to ensure they are not in violation of the requirements of the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA).
Typically, firms without a fee-for-planning technology component have relied on spot checks —whereby a tiny fraction of plans are reviewed to ensure their advisors are remaining compliant. However, firms that use spot-checking as their primary oversight are taking an undue risk because they could be on the hook for hefty fines should an audit reveal more widespread errors.
Fee-for-service financial planning technology is the rare software that directly supports a new, highly lucrative revenue stream while helping firms operate more leanly and compliantly. As RIAs and broker-dealers consider how to allocate future spending, they would be wise to recognize how technology designed to support fee-for-service financial planning can help them meet their most immediate goals while also allowing them to grow and nurture next-generation wealth management clients.
Founded by industry leaders Michael Kitces and Alan Moore, AdvicePay is the leading platform for processing payments and overseeing compliance of fee-for-service financial planning.
Cassie Jackson is a true advocate for financial empowerment, and within her role as AdvicePay’s strategic account executive, she holds one mission close: help firms transform how financial advisors provide invaluable advice and, of course, ensure they get the compensation they deserve. A graduate in finance from Montana State University, Jackson has seamlessly transitioned businesses and lent her expertise to both for-profit and nonprofit ventures. Beyond the world of financial services, she is a passionate volunteer, dedicating countless hours to reducing the suicide rate in Montana with her nonprofit, Suffer Out Loud. You can also often find Jackson camping with her family, channeling her inner carpenter, or engrossed in a captivating book.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.