Billion-Dollar RIAs Are Struggling With Financial Planning

“We have a fundamental, philosophical misalignment in our country between what we say advisors do and what is good for clients,” says Doug Fritz, founder of F2 Strategy.


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New research by F2 Strategy, a wealth management consultant, calls into question the ability of mid-sized RIA firms to offer comprehensive financial planning services.

For years, wealth management firms have moved toward offering additional financial planning services. For many advisors, financial planning is considered an essential service, and there’s even a large subset of RIAs that only offer flat-fee services, rather than the traditional fee on assets under management.

In March, F2 Strategy surveyed 37 RIAs, wealth management, and asset management firms representing $6 trillion in assets. The study looked at how mid-sized wealth management firms use and view financial planning.

At first glance, most firms appeared to offer financial planning services, with retirement planning, cash flow analysis, and estate planning at the top of the list. However, F2 found that only about 32 percent of firms offered financial planning to all of their clients.

Doug Fritz, CEO and founder of F2, said that there is a fundamental disconnect between the way in which most firms make money and the desire on the part of financial advisors to offer financial planning. “We pay advisors the way we get paid. Go get new assets. Go get new clients,” Fritz said. “[But] what’s the payback, monetarily, for a wealth management firm to have a financial planner? Fricking nothing,” Fritz said.

At most firms (52 percent), advisors are the ones who make the decision about which clients receive financial plans. The rest base the decision on the complexity of a client’s portfolio or AUM.

According to the report, some firms said that advisors decided to not offer financial planning to clients because it would require the firm to change its business model. Additionally, they said it could lead to uncomfortable conversations between the advisor and the firm.

However, when the financial plan decision is left to the advisor, many choose not to spend time creating a plan because there is no financial incentive for the advisor, said Fritz.

“We have a fundamental, philosophical misalignment in our country between what we say advisors do and what is good for clients — and frankly, what we actually do for clients,” Fritz said.

Some clients may be taking note. A survey published last month by J.D. Power showed that investor satisfaction with their advisors had plunged more than 17 points year-over-year, and that this satisfaction was closely tied to market swings and not the value that an advisor provides.

F2 believes that there are some steps that a firm can take to improve its approach to financial planning. Rather than changing the AUM fee structure, which would be prohibited for larger firms, F2 suggests that RIAs should focus on both educating their advisors about the value of financial planning for clients and providing them with the tools to do so.

F2 also believes that financial planning tools should integrate with an advisor’s CRM and portfolio construction software. Most firms surveyed used only one of two financial planning software platforms, eMoney and MoneyGuidePro.

“They’re all fundamentally good, but the largest ones are disassociated from the portfolio construction process,” said Fritz. He explained that an advisor may come up with a one-time financial plan, but if it isn’t connected to the other software that advisors use on a daily basis, the plan will quickly become outdated.

Only about 6 percent of the firms surveyed were planning to invest in new planning software.

“Over 60 percent said, ‘We’re not looking at new tools. We’re just going to try to optimize and make this better,’” Fritz said.

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