About Advice Only

We all see it: the financial advice industry is completely broken right now

Let’s look at some of the ways we’ve been collectively dysfunctional:

• Low trust by consumers despite quickly-growing interest in “real” financial planning

• Blatant conflicts of interest inherent to the most common business models;adding to  the confusion, dual registration structures/“switching hats” & lack of title protection

• Effects of racism & sexism on both advisors & clients

• Too few young people entering the profession & too many failing out early; of those who “succeed,” many feel stuck — genuinely desiring to improve clients’ lives but incentivized by employers who do not always prioritize clients’ interests above their own

• Increasing desire from new advisors to pursue career paths focused on genuinely helping improve clients’ lives rather than pushing commissioned products, but misaligned incentives at major employers. Many of the survivors who do “succeed” in their career past the first few hard years feel stuck. Abhorrent failure rates for new financial advisors, particularly when initially placed into sales positions rather than paraplanner or support roles under more experienced advisors.

• Fee-only AUM firms are a step in the right direction in terms of consumer transparency and aligning business models with fiduciary obligations, but they still have major problems with significant conflicts of interest in the advice given, poor understanding by clients of what they’re paying, the inability to serve younger or lower net worth clients without $1m+ to manage, the mismatch between what we charge for (investment management) and the main value we provide (financial planning), and the unpredictability of firm revenue with market volatility.

• A false belief that consumers without millions of dollars to invest either don’t need financial planning services or can’t be served profitably, made worse by consultants constantly encouraging advisors to go up-market and trim lowest-revenue clients  & the frustratingly persistent attitude that investment management is the main component of financial planning (blue ocean vs. red ocean approaches)

• Advisors at most firms finding it tough to choose a client niche & service model that works for them

• Many advisors starting their own RIAs (easier than ever thanks to modern tech tools and supportive peer communities) in order to work with clients under business models they believe best, only to feel stuck in their own firm trying to balance the dual roles of business owner & financial planner — which require different skill sets and daily activities(at this point, aggregators can offer an appealing promise of back-office support so they can focus on their clients, but then advisors can end up facing many of the same old problems under the new firm)

• Significant cash flow challenges during early growth for small firms who are genuinely trying to do right by both clients and employees;  pressure to take outside investments or loans to grow

• Advice-only solo advisors experiencing difficulty hitting reasonable profit margins when they grow to be small ensemble firms 

• Shockingly fractured and ever-changing regulatory structures across various parts of financial services, confusing both the public and those who work in the industry  (FINRA firms face endless paperwork & limitations,state-registered RIAs face a range of issues like WA not allowing billing on planning services/multi-state registration complexity/MO capping hourly rate/conflicting sets of rules across states/inconsistent guidance from regulators/held-away assets/marketing client testimonials/maintaining cash reserves/etc.)

• Product-focused firms  attempting to shift their business models but fumbling the process

• Succession planning & continuity planning remaining major challenges for several approaches, particularly solo RIAs

There are many different places offering financial advice, but consumers are often not equipped to evaluate their options.

Some examples include:

• Wirehouses
• Banks and credit unions, whether providing advisory services directly to clients or partnering with others who advise
• Insurance companies
• Independent broker-dealers
• Ensemble-style RIAs
• Solo RIAs
• PE-backed aggregators buying every RIA in sight to utilize economies of scale & take advantage of an inefficient market of unsophisticated sellers
• Custodians/brokerage firms offering limited financial/investment advice
• Online “robo advisors” managing investments that may or may not offer broader financial advice
• Employer-focused firms providing planning services or financial education as an employee benefit or in conjunction with employee insurance/retirement benefits (e.g., MetLife)
• Nonprofit organizations offering financial literacy & education
• Friends & family
• Self-education resources (e.g., blogs, podcasts, courses, books)
• Online discussion communities (e.g., Bogleheads, r/personalfinance)

Others involved in the tangled landscape include organizations that exist to encourage continued development of our profession and to support advisors and their firms:

• Professional associations like NAPFA or FPA

• Education-focused or credentialing organizations like the CFP Board, American College, or CFA Institute

• Affiliation groups like Garrett Planning Network or XYPN providing support services for independent RIAs but are generally not RIAs themselves

• Consultants like Limitless, Ensemble Practice, etc.

• Companies offering support services in specific functional areas like marketing, compliance, or transitions

• Custodians

• Interests of clients, advisors, and the firm are all fully aligned so there’s minimal conflict

• Service models to clients are both wide and deep

• Advice is given by highly qualified professionals with relevant education and credentials

• A demographically diverse range of clients is served (in terms of age, income, net worth, career, life circumstances, etc.)

• Staff on hand specialize in serving client niches with unique needs (and no, this doesn’t necessarily conflict with the prior point), leading to better outcomes for clients and more career satisfaction for advisors

• A clearly established career path guides professional progression; it is transparent, supportive at all stages, & logical (this is something that larger law firms generally do really well)

• Early career fail rate is far lower than the 90%+ experienced in the giant insurance companies and broker-dealers of the world (high early failure rates aren’t generally the fault of young professionals; they’re the fault of firms)

• Equal opportunities exist for all advisors regardless of race, gender, sexuality, etc.; all feel welcome, supported, and valued

• Stability of work force once they’re well-established with a set of clients they serve, who don’t feel the need to leave their firms (often hurting them/the firm/clients in the process) in order to work in an ethical business model or get paid more or get better support. Better loyalty & retention. Marketing to consumers is still a bit of a challenge, but the real competition between firms now is for talent.

• Workforce culture is strong; everyone is proud to say they’re part of the team

• The firm benefits from healthy margins; it maintains a reasonable growth rate and can be consistently & predictably profitable regardless of stock market prices

• Advisors keep the vast majority of revenue — seeing as they’re the ones with primary responsibility for serving clients

• No enormous capital requirements are necessary for M&A

• An effective and efficient tech stack works well for both advisors and clients, whether proprietary in-house or off-the-shelf

• A strong support ecosystem around advisors gives them the ability to focus 99% of their time on clients

• Advisors can focus on client needs instead of being forced to prospect in an “eat what you kill” model

• Advisors are part of a strong community with a culture of continued education, mutual support, and serving clients as well as possible

• Advisors have the ability to advise on held-away assets and not care about billing on them or transferring over whether or not it’s in the client’s best interest

• Advisors can use investment models and financial products from anywhere (not just from their own firm) depending on the actual needs of the end client

• Advisors have a predetermined, guaranteed way to sell their stake in the firm at the end of their career, knowing that their clients will be taken care of afterward

• A predetermined and tested succession plan is in place in the event of an advisor’s death or disability

• An established system ensures that clients are served without disruption while advisors are on vacation, sabbatical, parental leave, etc.

• Compliance obligations are managed as simply as possible within fragmented regulatory structures

• Focuses on serving advisors who want to go advice-only. This approach:

  • Frees financial advisors to give advice on a wider range of topics, with an open mind and clear conscience.

  • Removes the blatant and significant conflicts of interest inherently created by selling investment and insurance products for commissions.

  • Removes the less obvious but still significant conflicts of the AUM model, not to mention the pressure it creates for advisory firms to focus on wealthier clients and ignore the other 98% of the public that could genuinely benefit from financial planning services but can’t get help before meeting a firm’s investment minimums. 

  • Is absolutely economically feasible.

  • Easily attracts more clients.

• Provides the RIA structure instead of advisors having to set up their own. SEC-registered in order to avoid the many pain points that smaller state-registered RIAs face. A corporate RIA structure frees those advisors from most compliance burdens, including ADV updates and due diligence checks on outsourced providers.

• Allows advisors to continue to own their business and their clients 100%. Easy to join or to leave, we don’t hold their client data from them or issue forgivable notes or hire heavy-handed lawyers to keep their clients. This structure also allows much quicker transitions from other firms, they could start bringing clients over the same week as leaving old firm instead of waiting for months to establish RIA. 

• Gives advisors the choice of operating with their own brand name (with a simple DBA) or using the brand of the platform that is actively building consumer awareness.

• Allows advisors to serve whatever types of clients they want to, using a service model that they as professionals think is best for that client group.

• Allows advisors to focus on clients without the need to hire staff, manage people, do strategic planning, build workflows, select tech tools, learn marketing, trading clients’ accounts, filling out custodian paperwork, manage billing and admin tasks, and everything else that takes them away from doing what they do best and love doing most (clients!). No more “unhappy accidental business owners”.

• Sets up relationships with custodians and handles all of the operational support needed to manage clients’ accounts. 

• Allows advisors to keep 100% of the revenue collected from clients. No more percentage grid rates, salary negotiations, or commission clawbacks. All advisors need to pay is 1) a flat rate for core services provided through the platform, 2) flat rates for whatever add-on services they choose to use, and 3) direct costs of the payment processor.

• Provides key tech tools that have already been vetted and are easily set up for the advisors. 

• Includes a predetermined, clear-cut succession plan agreement between members of the platform. Advisors who retire or leave for other reasons will have a guaranteed option (but not requirement) to be paid for transitioning their clients to other advisors on the platform. 

• Includes mutual client support agreements for time off (parental leave/sabbaticals/temporary disability/etc). 

• Includes E&O insurance.

• Fosters a sense of community & supportive culture among advisors on our platform

• Provides mentorship & support for younger advisors early in career. For example, the platform will hire paraplanners to build experience working for member firms until they’re ready to transition to directly working with clients themselves.

• Develops partnerships with trusted external service providers they can confidently send clients to (tax prep/estate planning/lending/insurance/etc).

• Builds online profiles showcasing members of the platform

• Requires credible demonstration of professional expertise and experience, but does not mandate CFP certification and association with the corresponding controversy over the CFP Board’s influence on the industry

• Built by advisors, for advisors. Not backed by VC, PE, or a large corporation w/ misaligned interests

• Serves as a strong public voice to help shift both consumer demand and the industry