What an exciting time in personal finance

Your life does not get better by chance, it gets better by change.

~Jim Rohn

There are some major changes taking place in the personal finance world. These changes are making personal finance more accessible, more affordable and less complicated.

So where are these changes occurring?

Attack of the Robo-Advisors

Possibly the largest “disruptor” in the past few years is the explosion of a whole new genre of investment and finance providers. These have been dubbed robo-advisors even though some take offense to this term. There is still debate on whether these are a threat to traditional human advisors but my feeling is they are not. In the end human advisors and their clients can benefit from this new breed of advisors. The robo-advisors are changing the game with their technology platforms and improvements in investment management.

A fairly new trend is the emergence of robo-advisors for human advisors. There are now a few offerings in this space which include Betterment Institutional, Motif Advisor and Jemstep Advisor Pro. Instead of solely focusing on direct-to-consumer offerings these firms are also offering portfolio management through traditional advisors. Traditional advisors can now utilize the advancements these firms have made in several ways. For advisors that would rather focus most of their time on planning this is a great alternative to have a third party asset manager (TAMP) handle the investment management. There are also added benefits such as tax harvesting, portfolio re-balancing and lower cost. Here is an informative post from Michael Kitces on how the robo-advisors may end up impacting the existing FinTech ecosystem. The ultimate impact remains to be seen but I believe the net result will be a positive impact for the industry as a whole.

You don’t have to be rich……….

Investment management and financial planning are no longer just for the rich, or in terms of industry jargon…..High Net Worth (HNW). There are many that have been under served by the financial services industry but that is starting to change. Just as the robo’s are bringing more sophisticated investment options to the masses there are some radical changes happening in the space of personal financial planning. There is a huge need for advice and in many cases there may not be investments to manage or there is only the need for advice on a few pressing financial issues. In these cases the traditional commission based or assets under management (AUM) compensation model doesn’t fit. To meet this growing need there has been a shift to other fee structures like monthly retainers or a one-time fee to address a few important planning items. This type of approach tends to appeal to younger generations like Gen X and Millennials that are used to paying for things on a monthly basis.

Most notably the launch of the XY Planning Network in April of 2014 has given young advisors a new path to start their own firm and bring a whole new way of doing business to the industry. All advisors on the network are CFP(R) professionals, are fee-only and have the ability to work virtually with clients. Some even provide services virtually for all of their clients. This is another example of how quickly the industry is changing and how personal financial planning is becoming more ‘democratized’ across all needs. XY Planning has even fused the benefits of Robo-Advisors and working with an advisor in their network with their partnership announcement with Betterment Institutional.

This retainer or flat fee doesn’t just benefit the client with little or no assets to manage. There are more ‘traditional’ RIA firms moving away from the AUM model to an annual flat fee for services. The idea behind this relates to the fact that the services and investment management provided to client A with $100,000 in assets may not differ greatly from client B with $750,000 in assets. Yet if both are charged a 1% AUM fee client B pays $7,500/year versus client A paying $1,000/year. If the cost to deliver the same type of service and management for both clients is relatively close then why have such a large difference in what each client is paying. A flat fee that is negotiable based on the complexity of the clients needs levels things out in a more equitable way. The emphasis is moving away from selling products or gathering assets on mass to just helping people. The ‘old way’ of doing things left many people needing help but not finding qualified and trustworthy advice. I am excited to see the ‘old way’ is changing with each passing day and each new innovation that occurs so quickly in this world.
The future is bright indeed.
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