Journal of Financial Planning: January 2019
Anthony Stich is chief operating officer at Advicent Solutions, a leading provider of SaaS technology solutions for the financial services industry, servicing the world’s largest financial institutions.
Which came first: the financial plan or financial planning software?
On a superficial level, this question doesn’t seem to hold the philosophical weight of other chicken-or-the-egg scenarios, but over the past 30 years, financial planning methods have evolved so synchronously with the supporting software itself that financial institutions both large and small often find themselves discussing their planning strategy within the rigid confines of the technology that supports it. That’s not how it should work, and it is certain to change in the coming years.
For most firms, their strategy came first. And as financial planning continues to become more of a front-office service through the next decade, the market-validated positives of planning—from client retention and compliance support—will further encourage firms to embed the planning process seamlessly across their entire ecosystem.
This third wave of financial planning, where firm-prescribed planning processes manifest themselves across each digital touchpoint, will be an empowering return to form in one sense.
The lack of a fintech silver bullet in regard to cross-demographic planning experiences means that firms will be challenged to think past out-of-the-box planning models. In another sense, however, it proposes a greater opportunity for tech debt and fragmented planning processes, if any given firm’s strategy isn’t more considered and more mapped out than ever before.
How Did We Get Here?
Industry experts have been speculating about what’s next for financial planning for several years now, but financial planning still hasn’t been the consumer-dictated marketplace for disruption that many had speculated it would be. In many ways, planning continues to be a service reserved for the mass-affluent and high-net-worth individuals of the world.
Human, robo, and hybrid advice models have also reached a point of stasis with no single approach emerging as the new normal. Late last year, fintech pundit Michael Kitces mapped the financial planning software industry’s emerging disruptors along a timeline spanning back to the early ’70s.1 This history ebbed from the primitive, goal-centric tools of the ’80s to comprehensive cash-flow functionality that arrived with the advent of modern microprocessors in the ’90s.
It wasn’t until the early 2000s that the technology itself moved back downstream when product-centric planning began experiencing a bit of a renaissance. Goals-based strategies gained adoption with RIAs that served the mass affluent space, and both broker-dealers and insurance providers began leveraging this simpler planning system to demonstrate a need for additional investment. With that, adopters of this model—whether intentional or not—abandoned the ongoing client engagement that the initial step toward cash-flow models introduced.
That fissure in planning approaches—one that was inadvertently nurtured by a competitive technology landscape—still hasn’t closed. The most recent avenue for disruption in the financial planning process appropriately services the “monitor” stage by way of client portal offerings. Still, planning-centric portal adoption seems stymied by a number of factors across the industry.
For larger institutions, client portal experiences within other lines of business have preempted the financial plan data in terms of daily relevance, and reconciling this in a minimally disruptive manner takes time. For smaller wealth management firms, a fear of adviser obsolescence still looms. Many older advisers will likely have the luxury to weather the storm ahead of retirement. For younger firms, it isn’t a question of if they need a portal; it is a matter of when. Regardless of firm age and size, it also continues to be a matter of how.
The Present Plan
Moving forward, the value ultimately delivered by a financial plan to both client and firm will still be contingent on the same input it has been since the earliest standardization of the planning practice: client data. The trends we’ve seen recently in regard to innovating client discovery have largely been advances in efficiency.
For example, account aggregation is table stakes for most firms these days. Many wealth managers are also learning to no longer fear the robo adviser, but embrace the efficiencies that adviser-directed tools now afford them. However, that will continue to evolve in regard to both discreet and aggregated data, as client intelligence enters a newfound realm of abstraction.
From their methodology to their accessibility, retail-oriented data-gathering tools are beginning to obtain insights that exist entirely outside the standard arena of assets and liabilities. And this data is being accrued through bite-size engagements. The value of these micro-experiences is currently best implemented in larger institutions that maintain strong alignment across their individual business units, but it is primed for smaller shops, as client portal experiences throughout every market segment become more all-encompassing.
For example, a mass affluent plan may include the client’s goal of purchasing a snowbird residence at retirement. Although that purchase may be decades away, institutions like commercial banks can better inform and expedite that goal depending on the client’s engagement with other lines of business and the progress of similar clients. These sorts of data-driven actions aren’t entirely novel, but what firms of all types are slow to realize is that a financial plan’s holistic nature makes it the most reliable fulcrum for adviser decision-making on both a micro and macro level.
Fortunately for the U.S. financial services industry, American consumers are typically willing to tell you more about themselves. According to a 2017 survey by Accenture, 73 percent of U.S. respondents indicated that they would provide more data with their institution if it provided greater value to them.2
So, there isn’t an ambivalence to provide data; there is a poor return on investment for divulging any details. Any organization that processes data understands that every additional form field placed at the gate of a value proposition is going to diminish the conversion rate. Financial planning won’t evolve toward greater adoption by making concessions toward fewer data points. It will evolve by reimagining how firms obtain and engage with that data.
A Human Touch
The client-planner relationship, like any, is founded largely on trust. Planning practices can be augmented by data, but few trends point toward a future where the practice will be defined by it. According to the 2017 Capgemini World Wealth Report, only 8.9 percent of respondents indicated that they desired a self-service experience across every portion of the financial planning process.3
As more self-service planning solutions emerge, they are unlikely to introduce the level of disruption that Uber or Airbnb brought to the taxi and hotel industries. That’s because regardless of every knowable data point associated with an individual client or the trends associated with the thousand most-similar clients, planning cannot take place in a vacuum.
What is certain is that $68 trillion dollars is currently moving from a guaranteed book of business to one that will be increasingly up for grabs.4 Nearly seven out of 10 advisers will lose their AUM upon the transfer.5 The most affluent participants in this seismic shift are likely embedded well enough to a current institution where the AUM can be considered retained. But what about the middle-class HENRYs (high-earning, not-rich-yet) of the world who are currently dropping a mortgage goal into Wealthfront? Which comes first: an empathetic robo-algorithm or your holistic digital experience?
Endnotes
- See “Differentiating the Next Generation of Financial Planning Software,” posted Sept. 18, 2017 at kitces.com.
- See Accenture’s 2017 North America consumer digital banking survey “Banking on Value: Rewards, Robo-Advice, and Relevance.” Available at occ.treas.gov/topics/bank-management/mutual-savings-associations/consumer-retail-banking-survey-summary-presentation-jul-2017.pdf.
- Access the report at capgemini.com/service/world-wealth-report-2017.
- See “The Great Wealth Transfer” from Cerrulli. Available at info.cerulli.com/HNW-Transfer-of-Wealth-Cerulli.html.
- See the InvestmentNews article, “The Great Wealth Transfer Is Coming Putting Advisers at Risk” by Liz Skinner, posted July 13, 2015 at investmentnews.com.