Executive Summary
Last week Schwab announced the release of a new "robo" service, called Schwab Intelligent Advisory. And while the announcement was met with little attention from financial advisors, this announcement is a much bigger deal than most advisors and industry commentators have given it credit to be.
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore what Schwab Intelligent Advisory really is, why it's not a robo, and why that actually means Schwab Intelligent Advisory is even more of a real threat to independent RIAs.
Because while the media instantly dubbed Schwab Intelligent Advisory as a "robo" service, it is actually much more. Schwab Intelligent Advisory provides comprehensive financial planning plus investment management, delivered by real CFPs, who are available 24/7, at a cost of just 28 basis points, and an account minimum of just $25,000.
In other words, Schwab Intelligent Advisory is truly designed to be a mass affluent financial planning and investment management solution. Schwab is clearly looking to compete with Vanguard's Personal Advisor Services (undercutting their 30 basis point cost), but Schwab Intelligent Advisory won't only be a competitor to Vanguard. Instead, the reality is that Schwab will be a threat to any advisor serving the mass affluent market – which is most of us in the independent RIA community!
Realistically, Schwab's intention is certainly not to go directly after the clients of advisors who utilize their custodial services - more likely Schwab sees an opportunity to fill the void when headcounts drop after salespeople can't meet DoL fiduciary - but one way or another, Schwab's marketing message is going to reach mass affluent investors, who will realize Schwab Intelligent Advisory's services look an awful lot like their existing advisor's (but at a much lower cost!).
Schwab's announcement is also bad news for robo-advisors, but potentially great news for the CFP Board. Disregarding Vanguard Personal Advisor Services (which isn't truly a robo), Schwab Intelligent Portfolios is currently the largest robo-advisor with more than $10 billion in AUM. That means that despite already being the largest robo, Schwab is shifting their attention towards a more comprehensive model that can actually take business away from other advisors, suggesting that when Schwab looks at its robo data, it sees the real opportunity isn't a pure robo after all! Fortunately for the CFP Board, if Schwab (and competitors) are successful, they are going to be hiring hundreds of CFPs, and continuing to drive demand for the designation as firms require their employees to pursue it.
Ultimately, the emergence of models like Schwab Intelligent Advisory will benefit consumers, but advisors must acknowledge that for anyone serving the mass affluent (which is most of us!), the marketplace is about to become much more challenging, and the crisis of differentiation is just going to keep getting worse.
(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)
#OfficeHours with @MichaelKitces Video Transcript
Welcome, everyone! Welcome to Office Hours with Michael Kitces!
Last week, Schwab announced the launch of a new service called Schwab Intelligent Advisory, coming in early 2017. While there was a little bit of buzz about it amongst financial advisors, I don't think it got the attention it deserves. For that reason, I want to talk about this new Schwab Intelligent Advisory offering on today's Office Hours.
Because I think this is a much bigger deal than most advisors and industry commentators have given it credit to be. Hopefully I won't get myself in trouble with anybody over at Schwab headquarters, but I think the significance - and threat - of Schwab Intelligent Advisory has really been underestimated by independent advisors.
But first, we need to understand just what the new solution really is.
What Is Schwab Intelligent Advisory? [Time - 0:59]
Schwab Intelligent Advisory fits into the category now being called a "hybrid" advisory service – in this case, a solution combining Schwab Intelligent Portfolios (their automated "robo" asset allocation solution), with live CFP certificants who will provide both upfront and ongoing financial planning advice by telephone or video conference.
As Schwab explains it, clients get access to comprehensive financial planning, ongoing guidance from planning consultants (who will all be CFP certificants!), automated diversified portfolio implementation with their robo service, and a customized financial planning dashboard that lets clients track progress towards their goals.
And they get all of this for the robo price of just 28 basis points, with a $25,000 investment account minimum. Now, to be fair, that's 28 basis points plus the costs of the underlying ETFs themselves. So 28 basis points is not the all-in fee – it's just the advisory fee – but it's a low advisory fee! And the onboarding will also be an entirely digital: paperless account opening, fund accounts using mobile check deposit, etc.
Schwab Intelligent Advisory Is Not A "Robo"! [Time - 2:05]
While the media instantly dubbed Schwab Intelligent Advisory as a new "robo" service, it's really not.
First of all, Schwab already has a robo service – it's called Schwab Intelligent Portfolios. This is different, because this is really a service that's not just an automated investment solution, but instead offers comprehensive financial planning with live CFP certificants, who just happens to implement with Schwab's robo solution.
Frankly, this really isn't all that different than Schwab's existing structure – where a prospective client could walk into any Schwab branch, work with a Schwab financial consultant, and be invested in any one of Schwab's managed account solutions (including Schwab Intelligent Portfolios). Now Schwab is simply doing it through a digital medium.
This is, to me, what I first dubbed a bunch of years ago as a "cyborg" solution. Joe Duran at United Capital later called it the "bionic advisor". It's a solution that is part technology, part human, blended together to serve client needs. In other words, calling this a robo solution is, I think, a mistake. It's not any more of a robo than Personal Capital or Vanguard Personal Advisor Services.
This is a comprehensive financial planning solution plus investment management delivered by real CFP certificants who will simply use technology to implement client portfolios (frankly, in the same way any of us do). The only difference is that Schwab Intelligent Advisory will be doing what most of us do today virtually, so their face-to-face meetings will be via teleconference rather than sitting across the table, as we do. But in exchange, Schwab is going to offer this for 28 basis points, rather than the typical 1% AUM fee that advisors charge clients under $1 million of AUM.
In fact, Schwab is so targeted on mass affluent with this that they've said not only is it 28 basis points with a minimum of $25,000, but they will cap the fee at $900 a quarter. Meaning effectively capped at $3,600 a year, which, if you do the math, is the fee for any portfolio above about $1.3 million.
Schwab Intelligent Advisory Is A Mass Affluent Financial Planning Solution [Time - 3:54]
Schwab Intelligent Advisory is mass affluent financial planning and investment management solution.
And it's worth noting, I don't think that pricing at 28 bps is just some random number they plucked out of thin air. It's meant to be a direct jab at Vanguard's Personal Advisor Services, which charges 30 basis points for financial planning from a virtual CFP with implementation to a diversified portfolio.
But the problem here is that this isn't just a price war competition between Schwab and Vanguard for their digital advice offerings. It's a threat to every single advisor that works with the mass affluent and is going to get caught up in the collateral damage here. That means most of us (especially in the independent RIA community) and particularly amongst those who are solo financial advisors.
In truth, I don't think Schwab launched this specifically to compete with independent RIAs, especially given that it's the largest custodian for independent RIAs. I actually think the primary target of the Schwab solution is the massive swath of mass affluent investors who are going to suddenly become available and looking for a new financial advisor when the DoL fiduciary rule rolls out in April.
Industry analysts like Cerulli are already saying that industry consolidation the decline in the financial advisor headcount is going to get accelerated by DoL fiduciary, as a lot of salespeople – who aren't really trained or educated to give advice or get paid for advice – are going to move on when they have to actually be accountable for their advice. This means there's going to be a lot of mass affluent investors who are about to lose their "financial advisor" (or at least their financial salesperson who said they were their advisor), and Schwab wants to fill the void.
It's also notable that for the past year or two, all the anti-fiduciary lobbyists have been saying the mass affluent won't be served in a fiduciary environment, and the irony here is that what we're now seeing is companies like Schwab and Vanguard saying, "Yeah, we sure as hell can serve the mass affluent marketplace under a fiduciary standard without commissions, and we're going to do it as level fee fiduciaries at one-third the typical fee of today's independent RIA!" So much for that argument, eh?
Is Schwab Intelligent Advisory Really Competition To Independent RIAs? [Time - 5:59]
Ultimately, while I don't think Schwab Intelligent Advisory was intended as a direct competitor to independent RIAs, it is going to be a direct competitor to independent RIAs.
This shouldn't be entirely surprising. Those of you who've been following Nerd's Eye View for a while know I've been warning about this for several years now – noting that companies like Vanguard, Schwab, and Fidelity have been doing major hiring spurts of CFP certificants and are increasingly morphing themselves from do-it-yourself training platforms and asset managers into full-fledged financial advisory firms.
Given their incredible size, scale, and existing brands, they have the potential to compete rapidly and aggressively. They can start gobbling up growth going forward. We've already seen this from Vanguard, which in barely two years lifted Vanguard Personal Advisor Services to over $40 billion of AUM (and the rumors are they've hired over 400 CFP certificants to provide financial planning advice!). Now we're simply seeing Schwab fall in line.
And let's not forget that last year when Fidelity bought their own comprehensive financial planning software when they bought eMoney Advisor. Anybody want to guess how long it's going to take until Fidelity offers their own digital advice solution, beyond the pure robo Fidelity Go they already launched?
I would point out here, if you custody with Schwab, I don't think this means Schwab is going to literally take your client list and start soliciting them for Schwab Intelligent Advisory, or anything like that. Schwab runs a clean business in that regard. But the reality is, our clients are going to start to get blanketed in the first half of 2017 with ads for Schwab Intelligent Advisory. It's going to be on billboards. It's going to be commercials. We saw the same thing with the Schwab Intelligent Portfolio launch. Schwab has the resources to do major advertising.
And at 28 basis points for comprehensive financial planning, access to CFP certificants 24/7 (which is more than what a lot of us offer!), diversified portfolios, a financial planning dashboard, etc... it's going to start looking like what a lot of us do today. But cheaper.
To be fair, I believe the depth of what many of us do as independent planners is much deeper and more comprehensive than what Schwab or Vanguard are going to be doing. In fact, Schwab's announcement even acknowledged that clients will actually onboard themselves into the planning software.
But as AdvisorTech commentator Bill Winterburg pointed out last week, what prospects see is: comprehensive financial planning, CFP certificants 24/7, diversified portfolios, a financial planning dashboard, etc... In other words, it's going to be hard for the average prospect to tell the difference between what big, major, trusted brand Schwab says, and what a small, solo advisory firm says. This is especially true given that Joel Bruckenstein and T3 Tech Club reported last week that the financial planning software solution that Schwab is using will reportedly be MoneyGuidePro, and particularly their new MyMoneyGuide Labs, to provide the onboarding experience for Schwab clients.
So to say the least, if that's really how it turns out, it's going to be pretty hard for independent advisors like us to differentiate ourselves when we say we do the same comprehensive financial planning investment management, and even provide it to clients with the same financial planning software!
Schwab Intelligent Advisory – A Death Knell For Robo-Advisors And Boon To CFP Board? [Time - 9:06]
The last thing worth pointing out about the launch of Schwab Intelligent Advisory, is that I think this is basically the death knell for actual robo advisors. As I've written earlier this year, the B2C robo advisors are already in serious trouble. Growth rates have fallen about a third of what they were a year ago.
At this point, most of the major players have already pivoted to the B2B channel or have been bought out entirely. The few left standing in the B2C channel are companies like Wealthfront (which had a recent CEO change as the founder came back in to what will likely be a pivot for the company) and Betterment, which may soon be the only pure B2C robo advisor left standing (and even they pivoted to offer 401(k) plans and an advisor solution, as well!).
To the extent that robo advisors were working at all, virtually all the growth has been through Vanguard Personal Advisor Services ($40 billion) and Schwab Intelligent Portfolios ($10 billion). Except, Vanguard's solution isn't really a robo – it's hundreds of CFP certificants! And now Schwab is saying they're not happy with their robo solution. They want to move beyond robo and offer human CFP certificants in preparation for a DoL fiduciary transition and the opportunity they see!
In other words, if Schwab, the largest "pure" robo advisor, actually thought robo was such a good model, why on earth would they launch a financial planner CFP service?! I think what we're actually seeing is Schwab is pivoting away from its robo, despite already having $10 billion in it (most of the money which has been rumored for the past year is really just coming from existing Schwab do-it-yourself clients who are switching into robo-managed accounts). While the robo is good business for Schwab (it's more profitable to have clients in robo accounts than clients who are DIY traders at $9.95 a trade), it's not attracting much new, external business for Schwab.
So I think what we're seeing is Schwab launch Schwab Intelligent Advisory because they see that as a real opportunity to get new business away from other advisors and brokers that are going to be dislocated in DoL fiduciary. Schwab sees an opportunity to use their scale to do it at lower cost while leveraging their brand for marketing purposes. But it's not willing to bank on the pure robo solution to get the job done!
It's worth noting that, from the perspective of financial planning as an emerging profession, I actually think the Schwab shift is really good news. If it works, Schwab's going to have to hire hundreds of CFPs. Vanguard's already hired hundreds of CFPs. Fidelity may soon hire hundreds more CFPs. I think what we're going to find SOON is that major companies like Vanguard, Schwab, and Fidelity are going to become the entry pathway for new financial advisors, similar to the role that the big four accounting firms play for CPAs... where you go to the Big Four first, you work there for a few years, you get your licenses and your credentials, and then you decide what you want to do next with your career.
And it's important to recognize that Schwab is primarily targeting this towards the mass affluent (down to $25k and up to $1.3 million) based on their price structure. I think that's Schwab's way of narrowing the focus and leaving room for their largest RIAs to not be as impacted by this. Because the reality that we know from the benchmarking studies is that larger RIAs primarily work with wealthier clients north of $1 million. And of course, Schwab has its own Private Client Group, into which I'm sure they will try to upsell Intelligent Advisory clients as their wealth increases beyond the $1 million mark. In other words, Schwab Intelligent Advisory is specifically intended to be for more mass affluent "downstream" investors than those served by Schwab's largest independent RIAs and their Private Client Group.
Yet, a huge portion of the independent advisor community serves the mass affluent. This is especially true amongst solo advisors, and I think it's going to be a real challenge for them to be competing with Schwab. I don't think Schwab is aiming for us directly, but I think we're going to take a hit. You might see a couple clients leave for a lower cost solution. I think the bigger challenge is simply that we're going to watch growth continue to slow for independent advisors. It's going to get harder and harder to win new clients. We're already seeing the decline in referral activity. Now you're going to see more price competition to compound the issue.
On the other hand, from the custody business perspective, this could actually be a boon to RIA custodians like Pershing and SSG, which don't have retail divisions to compete against independent RIAs. That may become a differentiator for them, to say, work with us, and at least we won't be in competition with you.
But the reality is, whether you custody with Schwab or not... whether you use Vanguard funds or not... whether you custody with Fidelity or TD Ameritrade, which already have retail divisions, have launched their own robo offerings, and I'm betting are going to launch their own digital advice CFP offerings soon... the competition is out there! And it's out there whether you custody with them or not. The real question is, what are you going to do to differentiate your advisory firm going forward to handle the competition that's coming?
Still, though, things look brighter for those who run a CFP certificant program. They should get ready for a big boost in enrollment in the next couple of years as more CFPs start coming in and getting pushed through by large firms. And this is notable because 2016 was already the best year for the number of people sitting for the CFP exam since 2007!
The bottom is simply this: Financial advice is on the rise. It's good for consumers. But it's going to be harder for those of us that already deliver it and are going to have to compete in a more challenging marketplace.
And in this increasingly competitive marketplace, recognize that Schwab Intelligent Advisory is not a robo advisor solution. It's comprehensive financial planning plus investment management for the affluent, at a very low cost, and delivered by a CFP certificant who just happens to be virtual.
For all of us financial advisors that have insisted that clients will pay more for a real face-to-face solution with a handshake at the end and the ability to sit across the desk from us, well, we're about to find out for real how much more people will pay for that.
I hope this is helpful food for thought. This is Office Hours with Michael Kitces, 1 p.m. East Coast time on Tuesdays. Thanks for joining us, everyone, and have a great day!
So what do you think? Is Schwab Intelligent Advisory a robo? A threat to the independent RIAs on their platform? Does this make it less appealing to custody with Schwab? Is this the death knell for B2C robo-advisors? Please share your thoughts in the comments below!
Hi Mr. Kitces!
Sounds like good news for new CFPs and college students wanting to pursue a financial planning career!
Steve,
Yes indeed, it definitely is from that perspective! 🙂
– Michael
As a former XYPN Member and Firm owner, I was thrilled to hear about Schwab’s strategy to serve the Mass Affluent who had reached a level of success in life to warrant financial planning conversations, yet did not meet the asset thresholds to work with larger RIAs. Every client will get a dedicated CFP professional with at least 5 years of financial planning experience for an extremely competitive annual price. Client’s will have access to customized planning technology, regular planning meetings, online account paperwork, access to Schwab Intelligent Portfolios, and dedicated teams of planners to leverage. It’s a big win for the Gen X/Y/Millennials consumers.
Do you currently work for Schwab? I would be very interested in learning about your experience if so.
I do work with Schwab. I am in the higher tier service model for $1mil in assets. But I know a lot of informaiton about the new SIA offer that is rolling out in january to invitation only clients. As we continue to hire, there will be more access to the offer in Summer-ish. I would love to chat more about the opportunity with you Steve.
Austin,
Indeed, I view this initiative – along with Vanguard’s – as a huge plus for consumers. We’re seeing the transition to no-commission financial planning for the mass affluent… albeit still tied to asset management (which, ultimately, will still be limiting), but a huge advancement nonetheless!
– Michael
Hi Michael,
Do you have any understanding of how many clients each Schwab CFP(r) will service? I think I’ve heard you mention that most Advisors can handle maybe 100 tops….so I’m wondering how 100 x $25,000= $2,500,000 x .28bps = $7000 can support the cost of a CFP(r) unless said CFP(r) is earning Chinese wages….just saying. Additionally, it will be easy to overcome this concept, because I’m a business owner rooted in the community and very passionate about “caring” for clients. Can you imagine the amount of CFP(r) turnover there will be in these firms / factories. The same as what happens in Banks. They will become nothing more than revolving doors ultimately leaving the clients with a new Advisor every few years. I believe the consumer will get sick of this….time will tell.
Gman,
No indication of what the staffing utilization levels will be for Schwab.
Notably, I’m sure that Schwab doesn’t anticipate that EVERY client will be at the minimum threshold. And even if they are, saving over time, plus growth from the markets (given that the fee is a percentage of the account value), will lift that account balance (and therefore the revenue per client) over time.
That being said, yes realistically I doubt that staffing levels will be 1 advisor per 100 clients. It almost certainly will be higher. As you note, it has to be in order for the math to work.
Which, again, means that there will still be room for “deeper service” advisory firms who give clients more advisor access time to go beyond Schwab, and charge more. The caveat, however, is that’s a difficult way to differentiate in practice, given that “everyone” says they provide “great service”. :/
– Michael
Gman makes some great points. Sounds like the wirehouse/bank environment on steroids. Unless they attract a high percentage of clients at the $1 mil level and require the CFPs to have huge books, there is no way the numbers will work.
Terri – Thinking long term but what if you took everything off a CFP’s plate except what they could do truly better than a machine. This could even eventually be creation of the plan. People could be asked a series of automated questions that could determine priorities and a basic plan could be produced. This plan could be vetted by a CFP or a team of CFPs and presented to the client. After that, the main function for the CFPs would be to meet when things change and the occasional phone call.
I am in my mid 30s and have a very basic financial plan. If I paid under this plan, as long as the materials being sent explained things well enough, I would probably only need to meet every couple of years or so. I would think under a system like this the average CFP could handle exponentially more clients. You can scale with clients like me.
There is still room for high net worth and/or more complicated client scenarios to meet face to face with CFP charging more. As Michael said though, this could be a game changer for a lot of clients/advisers. Its going to be a very different landscape in our profession a decade from now.
Roger that! All the more reason to be referable and let your clients do the bragging for you. I just had a new client come in this week (referred by one of my clients) whose Boyfriend is another CFP(r). Overwhelm them with boutique customer attention, reasonable investment returns, random acts of kindness, and let the chips fall where they may…”bring it” Schwab.
Completely agree with the GMAN here. Let’s even say the average balance is 250k. and you are assigned 200 clients. That’s 50mm AUM, not too shabby. But at 28bps you’re total fees are 140k. That’s not going to work either, especially for schwab they are public still aren’t they?
So now you, the CFP, are basically on an as-need consulting basis, there to serve your client whenever they need. Some won’t need you much, if at all, others will need you ALL the time. If you only have 240 working days in a year. How much are you truly going to be serving your clients? You are going to be so busy you won’t be able to see straight and then you’re going to leave for greener pastures, leaving your client with their 3rd advisor in 2 yrs. New advisor will be thrown to the wolves to put out the fires started from the complainers who are upset that they are with their 3rd new guy and the rest of the client base is essentially forgotten. Trust me, I’ve seen it happen over and again.
The CFPs these firms bring on are at that point just another commodity. One leaves, we replace him with another and then another etc. But what happens to the client? is he actually being served? He certainly is still paying the fee, reduced though it may be. But is that 3rd CFP providing any value, other than commoditized and robotic planning that the firm dictates from the C-suite?
And then another crack in the model. If the flipping regulators ever so wanted they’d see reverse churning is just as bad as straight up churning. Firms charging fees for not doing any work other than standard “rebalancing” using computer models.
Ahh, hate to ramble but as much as I like the idea of what Schwab is doing, which I truly, do, I just don’t see it working in the constructs of the current model. These newly minted CFPs better understand the days of making 6 figures right out the gate, are long, long gone.
Gman says CHinese wages. Man, couldn’t agree more. It’s going to go that way. And maybe that’s not a bad thing.
Don’t forget the median household income in the US is just over $50k/year.
There’s A LOT of room to pay a well-above-average wage to a CFP and be profitable at these numbers.
The idea that “every” advisor has to or should make hundreds of thousands of dollars isn’t realistically sustainable.
– Michael
That 140k is to the firm, not to the advisor though. I imagine at least half if not more of that 140k is not finding its way to the advisor. So, that fee pays him roughly 70k. Not a bad salary, really, health care is included, E&O, CE, paid leave etc., but I suspect few attendees at Texas Tech and elsewhere are thinking they’re going into the biz to make 70k.
Again, not bad, don’t get me wrong. I started at Vanguard 20 or so yrs ago making 18k and all I had was a series 6 and 63.
But how long will a quality advisor stay on, doing that much work for that kind of salary?
I think it will be like someone pointed out in the comments previously, maybe it was you Michael, you go to one of the big 3, Vanguard, Schwab, Fidelity, to learn and get your street cred and then you go off to bigger and better things. Makes complete sense to me.
But again, where does that leave the client? In commoditized planning for a relatively small fee with a new, and inexperienced advisor every yr who may or may not ever contact him. This is exactly how I started myself, Vanguard and then Schwab. And it worked out great for me.
But I hope we don’t hold this model out as pure as the wind driven snow as there are many, many downsides as well.
As for pricing mass affluent? I don’t know. I still don’t see what’s wrong with commissions though. I hate churning but paying 5.5% upfront for an American Fund that then pays a .25 12b1 fee is not a bad deal for the client in the least.
Michael,
The median income in US may be ~$55k, but the “median” American doesn’t have a college degree and a pretty-hard-to-obtain certification in a fairly lucrative field.
I agree that every advisor shouldn’t expect to earn hundreds of thousands of dollars. (I’m exhibit A.) But a seasoned CFP should expect to earn a fair amount more than the U.S. median income.
Let’s say that $100k along with usual employee benefits is reasonable for someone with more than five years experience after getting their CFP, i.e. eight years total. I’m having a hard time seeing how that happens at Schwab.
If Schwab takes half of the revenue from this system, that means that a Schwab advisor must generate $200k. That means that the advisor need to “manage” more than $70 million dollars ($200k/0.28%). Assuming an average account of $250k – which isn’t exactly mass market but we’ll go with it – that’s 285 clients!
That’s insane and not sustainable.
Even at $80k salary with benefits, that’s 228 clients.
Even if Schwab only needed a third of the revenue generated, it’s still problematic. At 100k salary, you’d still need 216 clients. At $80k, you’d need 173 clients. It still doesn’t work.
It’s a great way for newly minted CFPs to get some experience (a LOT of experience extremely quickly) but it doesn’t seem like a long-term option.
I’m curious about what I’m missing from the equation. Obviously, Schwab has thought of these issues. But the numbers don’t seem to add up.
Let’s face it. If you have an account of less than $250k, it’s just very difficult to create a system where you get a true personal touch from an experienced CFP.
We won’t know until Mid-February. Still finalizing. Schwab doesn’t really suffer from turnover like most firms in the industry. Great culture and benefits.
Based on the experience of other companies doing something similar, the provider turnover thing will lead to attrition as clients complexity levels grow & they tire of explaining their situation to a new advisor every few updates. It makes sense these advisors will have a much higher client panel than traditionally common. They’re not engaged in marketing or practice management activities. They’ll sit down and plug in for a shift with 80-90% capacity utilization engaged with clients instead of the 15-30% that is typical in the industry.
You’re presuming that Schwab won’t have a higher-tier service for those who do have growing complexity (and net worth). I’d be cautious about that assumption. 🙂
It’s also worth noting that many of these mass affluent consumers today are served by relatively new brokers, who often don’t survive more than a few years in the business. Which means many/most of them ALREADY experience this kind of “advisor” turnover, just in a broker-of-the-year form instead of “call-center-advisor-of-the-year” scenario. But Schwab will likely have much better process and client experience consistency, even in that format…
– Michael
Very true! How aggressively they cannibalize the hybrid offering is an open question as the client asset base and complexity grows. Within large firms, the business model actually matriculates the most desirable clients up to Sr. advisors as newbies fall out of the business. Within context of DOL and re-framing the overall industry, introducing clients to paying for advice early compared to broker of the year (and new commission of the year) dovetails nicely with the an XY type model providing more value for a higher ‘relative’ fee! Explaining to clients they need to pay for what they got for free (excepting the commissions) is a different level conversation.
Thanks for the update Michael. Food for thought, but scary for someone that just invested in launching a new RIA firm.
Michael gives us a nice “heads-up” (as usual) about what’s coming. Personalized financial advice from a factory floor? I do not think so. In our attempt to make most everything about “price”, humans will pay a real cost for this. The “mass affluent” deserve meaningful advice and guidance. This is not something which can be commoditized. Perhaps such mass advice would appeal to the next AI being?
My big question is will a client get a different advisor every time he/she calls in? The 24/7 model sounds nice, but that implies more of a call center operation, where the advisor on duty will need to review the notes from the last encounter.
My employer stated that if I did not become a CFP(r) certificant that I would lose my employment. In January 2008 I became a newly minted CFP(R). The CFP Board implemented a change in their rules that they deferred until July of 2008 that stated that the fiduciary responsibility of a CFP would be the mainstream rule. My brother, an attorney, asked me if I knew the ramifications involved in having a fiduciary responsibility to my clients. After he explained what that meant I went to my manager in January 2008 and asked what my employer was going to do with regards to me telling my clients what my compensation would be for selling proprietary products. My manager and my compliance officer both told me that the CFP(R) rules did not apply to my firm and that I could not tell clients how I was compensated.
I left the firm in July 2008. Based upon what I see in this article, what a mistake I made.
The CFP Board compensates its leader based upon the number of CFPs that are newly minted. Where do you get the most potential CFPs, you guessed it.
Now not only do I have to still compete against my former employer, my CFP(R) is no longer a differentiator, my compensation is potentially impacted by my former employer, and holy moly that same firm shifts 8 years after the fiduciary rule was supposedly implemented, per the feckless CFP Board, and embraces it because NOW they can make more money by doing so and basically squeeze me out of business.
Ain’t capitalism grand!
Don’t kid yourself. Though Michael is being more than kind to the three major players they are your mortal enemy. They want more, always more, and they will get it any way they can.
This is a very exciting development for the mass affluent and those who couldn’t historically afford financial planning advice. That being said, SIA is the new version of “brokerage” services under the DoL rule.
I’m a 25 year-old CFP(R) certificant so my runway in this industry runs a LONG way. Because of this, I stay acutely attuned with industry trends and where things are going. SIA is going to challenge any business that serves the mass affluent because, as has been discussed in previous comments, the margin simply isn’t there for smaller firms. This means independent RIAs will need to become more specialized in order to compete and will have to serve more affluent clients. Make no mistake, SIA is stepping on a lot of toes even though they claim not to be. Anyone in the business needs to start clarifying their value proposition.
Schwab can well afford to have a loss leader while they build up this new offering. Technology and support staff allow the CFP take on more clients. Schwab’s loss budget can incorporate a generous comp package to CFPs to reduce or eliminate turnover while SIA builds a solid reputation and attracts volume. SIA clients increase in net worth and graduate to more profitable tiers at Schwab. If you don’t think that Schwab can do this then consider what technology and the mass appeal of convenience via mail-order did to the once thriving community pharmacy profession. The professional value and service of a local face-to-face pharmacist has all but disappeared in most parts of the country.
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Well, I’m an average investor with only 175k in investments. Been for years with face to face advisors who I see once a year for 1.5% of my money. Tired of it all- I’m jumping to Fidelity or Schwab or maybe even both. Can’t wait to have the benefit of a group pf people watching over my investments and making decisions(not just one or two people – so more checks and balances) , an awesome interactive website, face to face help through screen sharing- AND LOWER FEES! And the service is just as good or better because you have much more access to CFP’s at longer hours!
Fidelity and Schwab ARE going to radically change financial planning- in a very good way for the consumer who has been ignored or deceived for years.
There is nothing intelligent about robo advisors. They will get crushed in any correction. Any good FA can beat a robo adviosr
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