Why now is the best time to hire a financial planner

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Financial planning is being redefined from an exclusive benefit to one for the masses.


Key points

  • Asset-based compensation models overserve overserve.
  • New models intended to serve the greatest number are multiplying.
  • Employers get involved in personal financial benefits.

The term financial advisor seems…exclusive. And it is not without reason. For generations, the industry has been organized in such a way that advisors are rewarded for serving only high net worth individuals. Over the past decade, the financial advisory industry has been reinvented, making now the best time to hire a finance professional.

How was it

For most of the industry’s history, wealth managers have been incentivized to serve the wealthy, using what’s known as an Assets Under Management (or AUM) model. It works like this: an advisor takes on two clients, client A with $1 million to manage and client B with $5 million to manage. The advisor provides investment advice for a fee of 1.2% on the first $1 million of investable assets and 1% on assets above that amount. Client A is billed $12,000 per year while Client B is billed $52,000 per year. Client B, because he has more assets, is a much more attractive client to the advisor.

In the AUM model, financial advisors focus on investable assets, not overall financial planning. So while advisors may have conversations with clients about their personal finances, these conversations are often viewed in light of finding assets to invest in for the advisor to be compensated. In an AUM model, those seeking financial planning services without the assets to back them up could be left behind.

A dramatic shift towards average investors

Over the past five years, however, industry attitudes have shifted towards serving the average individual. Instead of charging clients from an asset base, some advisors charge a flat fee to provide a suite of services. Typically, these services include a comprehensive financial plan, including investment advice provided by their counterparts who charge AUM.

How each advisor approaches their fee structure differs, but often these fixed fee structures are more convenient. For example, a flat rate advisor might serve client A with $1 million in assets and client C with no investable assets. The advisor can charge $2,000 for a single comprehensive financial plan, regardless of the client’s wealth. This way, client A and client C will receive the same service for the same price, and the advisor is not encouraged to serve only high net worth individuals – the fees will not be different for them!

The effect of the flat rate model in democratizing the financial planning industry is hard to overestimate. Now those who were not qualified for the minimums required to enter the office of an AUM advisor have access to the same caliber of financial expertise.

Financial wellness programs

One of the biggest changes in the industry is the availability of financial wellness programs for core employees. In the past, financial advisors were only offered to senior executives. Today, employers in various sectors are opening their doors to financial advice for all their employees.

Workplace financial wellness programs can take a variety of forms, including bringing financial planners to the workplace, offering financial seminars, and deploying a suite of technology resources. Additionally, employers can offer access to a 1-800 line for financial advice, as well as free or discounted services with an outside financial planner.

If your employer offers financial planning services, take advantage of them. Employers like to see employees use their resources, and the services could go a long way toward securing your financial future. Finally, recognize that financial wellness programs are part of the growing democratization of financial services as it moves from serving the few to serving the many.

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