The True Value of Financial Advice
From: Horizon Investments
Have you been to a financial services conference lately? Then you know that the tectonic force shaking our industry is technology.
Except, that’s not entirely true.
The landscape is changed. And technology is being increasingly used in ever more sophisticated ways. But the real seismic shift shaking the ground beneath our feet isn’t digital transformation — it’s the Copernican Revolution.
It’s a radical change in perspective that puts the individual — not the institution — at the center of the financial services universe.
It’s an exciting time, because even though some have always seen the world this way — for example, financial advisors — the rest of the industry is finally catching up.
Advisors can now access more product, more technology, and more services to help them deliver on the promise of individualized, goals-based advice.
Of course, they also face more risk.
The biggest risk to the future of advice? Probably not the one you’re thinking of. It’s not Robos or Artificial Intelligence — it’s creeping normality.
Like the unsuspecting frog in a slow-boiling pot, advisors are acclimating to the idea that their value can be easily quantified and commoditized.
Commoditized, Low-cost Advice?
It’s a dangerous proposition, perpetuated by large institutions staffed with quants who think anything can be priced efficiently. Institutions aiming for a slice of the massive advisory market pie, and staffing Financial Planners accordingly.
What’s more alarming? Some advisors are starting to internalize it, normalize it, believing they might have to adopt a “low cost” model of advice to stay relevant.
But, like Easter Island’s inhabitants who over decades destroyed the forest that sustained them, advisors who buy into this worldview may be contributing to their own undoing.
The truth?
Providing individualized financial advice at scale is a myth. We’ve been sold a bag of goods — a tall tale about the value of advice (and of the advisor) that’s too simplistic to be true. It’s time to tell the whole story.
Reductionist Arguments About the Value of Advice
Right now, large market participants are determined to control the public dialogue about the value of advice to suit their own purposes.
The typical sound-bite? Financial advisors get compensated for three things: (1) financial planning, (2) investment management expertise, and (3) relational skills.
Against the relentless backdrop of marketing campaigns and ads promoting the value of advice at well below the 1% average, it’s easy to see how the simplicity of the math could seduce people.
Cost alone is a silly way to choose an advisor because it puts a price tag on something invaluable. Our individuality.
These market participants want you to believe that, in light of tremendous technological advances, the value of an advisor boils down to relational skills. Everything else can be outsourced or automated.
Software can do the planning. Asset managers can do the investing. The advisor’s just there to hang out with the client.
It’s a reductionist argument. It demeans the work of advisors and does a disservice to individual investors.
Why?
Because the value of an advisor can’t be deconstructed with statistical analysis, and individual parts outsourced to the lowest bidder.
People are more complex than that. Body, mind, and soul — take one away and you lose the essence of what it means to be human. Humans aren’t merely the sum of their parts.
The same is true of financial advisors. The nature of advice is more complex than is being implied. Those who reduce the advisor’s value down to three things that can be readily divided are pricing advice based on what can be easily seen — which is just the tip of value iceberg.
So much more goes into crafting a plan to achieve a person’s financial goals, executing on that plan, and then adjusting it as life happens.
And life does happen.
Individuals — who they are, what their goals are, and how their lives unfold — are idiosyncratic. Goals shift. Priorities change. Their timeline, the sequence of returns, shifts.
