A small group of financial advisers wants to change how the profession operates.
its branches financial advisor provide more than just advice; they manage client investments, earning fees or commissions, which is how they make their money. But some advisers offer financial advice and nothing else, leaving clients to handle their own investments and provide guidance on a range of financial issues beyond asset management. These advisors charge by the hour or follow a subscription model, providing, say, several months of advice for a set fee.
“The main benefit of ‘advice only’ is for customers not traditionally served by the financial planning industry to finally get the opportunity to receive financial advice without giving up their investments,” said Cody Garrett, certified financial planner and owner. of Financial Double Measure in Texas.
These advisors say they are the future. But others are not sure.
Will it catch?
“I think it’s a noble idea that has little chance of making inroads into the conventional financial planning business model,” says Michael Finke, wealth management professor at The American College of Financial Services.
Both Finke and Garrett agree that today, very few financial advisors offer advisory-only services – probably less than 1% – while the majority of advisors operate on an AUM model.
Finke is skeptical that the advice-only model will catch on, mainly because it doesn’t pay financial advisors enough to make it worthwhile. Advisors who manage client investments typically operate under a model known as assets under management, or AUM. It may charge a commission for the investment or a fee that averages a percentage of the value of the client’s assets. Commissions can come with conflicts of interest because, for example, advisors can receive higher commissions on some investments. Fee-based advisors typically have no interest in recommending one financial product over another.
Financial blogger Michael Kitces is more confident in the concept than Finke: “From a broader industry perspective, I hope the only advice is to continue to gain traction with the consumer segment, the same as how. fee-only (back to when it was just a fee and only a small part of the advisor, like the advisor-only it is today).
Kitces noted that different types of advisors serve different types of customers. Cost-only advisors, he said, can be used for people who “have accumulated assets and want to delegate investment management to an advisor they can trust as an objective advisor (rather than a brokerage or insurance salesperson), where the cost. – has only evolved a long time”.
But consumers without accumulated assets or who are comfortable managing their own portfolio may want an advisor, Kitces says, “who is really there to JUST give them the advice they want, and has no potential ulterior motive to get them to turn the relationship into one of the ongoing AUM that they do not want to delegate.
Garrett has a three-month planning process and says about 80% of his clients return once a year. He charges $6,400 the first time and $4,800 each time they return. He maintains that he saves his clients an average of $20,000 a year, compared to AUM advisers. Garrett says his fee works out to about $320 an hour. He said his fees are likely higher than the average fee for a mere adviser, which he estimates is “probably closer to $150 to $250 an hour.”
Finke says that even if consumers can save money overall, they will likely refuse to pay a flat fee for advice. He says clients are more aware of how much they’re paying just for planning advice because it’s a separate fee, rather than something folded into their asset management.
Garrett says he has more than enough business as an advisor-only advice. “I now receive more than 20 client inquiries per week running this model,” he says. “I’m sure many other advisors would like this level of demand.”
Finke said he could see the idea if, he said, employers offered to provide advice-only sessions to their workers as part of their retirement savings plans. “In that sense it’s probably the most attractive model for the hourly compensation advisory mode,” he says. “But even then, people need to seek advice, and there aren’t enough people.”
Advisors Say It’s the Future
Garrett says his typical client is a married couple in their early fifties with $2.5 million in investable assets wanting to retire in the next five years. His youngest client, he says, is 30 and the oldest is in his mid-seventies.
Garrett says how to manage investments is only a small part of the financial advice he offers. He provides a list of 25 different categories of advice, ranging from real estate documents, to charities to life and disability insurance and financing long-term care.
Financial planner Sean W. Mullaney, president of Mullaney Financial & Tax Inc. in California, also offers advisory services only. He predicts the AUM model will “die a long, slow death” as advisers stick to the model, while younger clients are directed to advisory services only. Mullaney says he earns the same, whether his clients are uber wealthy or middle class, so he treats everyone the same. He charges $4,400 for a 90-day planning process, regardless. And when the client comes back, the cost goes down.
How to find an advisor just for advice?
Cody Garrett compiled a list of advice-only tips that you can find here: measuretwicefinancial.com/wp-content/uploads/2022/03/Advice-Only-Financial-Planner-Referral-List.pdf
In addition, Kitces recommends the Alliance of Comprehensive Planners https://www.acplanners.org/home.