Executive Summary
As the world of financial advice continues to evolve, so too does everything from the services we provide to clients, the business models by which we operate, and the labels that we use to describe ourselves. The past 50 years alone we witnessed transitions from insurance agents and stockbrokers, to financial advisors and financial consultants, to financial planners, and now wealth managers.
And now the ongoing crisis of differentiation appears to be spurring the next evolution for financial advisors, towards an ever-more-holistic model that United Capital’s Joe Duran has dubbed “Financial Life Management” instead. In this ‘new’ approach, advisors would be increasingly focused around client advice in regards to work and employment, and spending behaviors – which research finds is, from the consumer’s perspective, the real focus of their “financial life story” (and not their savings and investment portfolios!).
Of course, the caveat is that most financial advisors have limited skills and even fewer tools to support clients when it comes to areas like managing their human capital and providing guidance on spending and household cash flow. Yet in this gap is the very opportunity for firms to differentiate themselves by going deeper into a new type of service model. Including firms like United Capital that may offer a platform (e.g., FinLife Partners) to deliver on the FinLife value proposition.
Ultimately, it remains to be seen if “Financial Life Management” really becomes the new term du jour that supplants financial planning and wealth management, but arguably the time really has come for the next stage of advisor evolution. And “FinLife” seems as good a label as any to capture the ever-more-holistic focus for the future of financial advice!
The Progression Of Labels For Financial Advisors
As the financial services industry has evolved, so too has the role that financial advisors play, the value-add that they provide, and even the labels by which they hold themselves out to consumers.
After all, if we wind the clock back 50+ years, the people consumers interacted with from the financial services industry were most likely insurance agents – and actually labeled as such – who sold insurance door to door and were exemplified in television shows like Father Knows Best.
The rise of financial salespeople in the insurance world were later complemented by the parallel rise of stockbrokers, accelerated by the de-regulation of fixed trading commissions in May 1975 and focused increasingly on stocks after the Tax Reform Act of 1986 eliminated many other types of tax-shelter investments (which were commonly sold by financial salespeople at the time). By the mid-to-late 1980s era, it was the heyday of Wall Street and stockbrokering.
Yet the explosion of salespeople peddling insurance policies and stocks (and later mutual funds) eventually become so overwhelming by the 1980s, that the best salespeople realized they needed a better, more consultative approach to differentiate themselves. The end result was the creation of the CFP marks (with the first class of CFP certificants minted in 1973), and an increasingly consultative selling approach that started with understanding a client’s goals, and then selling them what they needed as a solution.
By the 1980s, this new crop of “financial advisors” were becoming more successful than their stockbroker and insurance agent brethren, as consultative financial advice provided greater value to the client and led consumers to prefer financial advisors over ‘pure’ salespeople. As it was harder and harder to get paid for selling insurance or brokering stocks (and undermined by life insurance sales scandals and the ongoing decline of stockbrokering commissions), the stockbroker and insurance agent labels vanished from the business cards, to be replaced by financial advisor and financial consultant.
At the same time, though, a subset of financial advisors sought to not just create financial advice value for clients to facilitate the sale of insurance policies, stocks, and later mutual funds for a commission, but to actually receive fees for the advice itself. These independent advisors, for the first time largely unaffiliated to a particular single product company, came together at a Society of Independent Financial Advisors meeting in 1982, and ultimately formed the National Association of Personal Financial Advisors (NAPFA) a year later to support the growth of fee-only financial planning advice. And by the 1990s, this group of (comprehensive) financial planners began to increasingly compete with the consultative-selling financial advisors, again enjoy the growth borne by a deeper client value-add.
Of course, as with the other transitions, eventually the growth of financial planners (accompanied by the rapid growth of CFP certificants and the further decline of selling mutual funds brought about by the rise of internet brokerage firms), once again drove a subset of individuals to evolve an even deeper, more value-added approach. Supported by pioneering platforms for independent advisors like Schwab Financial Advisors Service (first launched in 1987), by the late 1990s we witnessed the rise of the “wealth manager” over the financial planner, providing a combination of discretionary investment management services coupled with comprehensive financial planning advice (and built primarily around the AUM model) to a higher-net-worth (but over time increasingly mass affluent) clientele.
And now, competitive forces – including the ongoing commoditization of investment management services as typified by the “robo-advisor” and the growth of mega-brands like Vanguard, Schwab and Fidelity offering financial planning – are once again putting pressure on wealth managers to further differentiate themselves. The launch of digital personal financial management platforms like Mint.com in 2006 made it possible for consumers to centralize all aspects of their financial lives – and in the process, has illustrated the gap in advice that still remains for all the non-financial-product-centric aspects of a client’s financial life.
Accordingly, forward-thinking advisory firms are once again suggesting it’s time for the labels and value-added services of financial advisors to further evolve – with United Capital CEO Joe Duran making the case that the new moniker should be comprehensive Financial Life Management, where the advisor has a service model to support the client’s entire “FinLife” needs.
What Is Financial Life Management?
As United Capital defines it, Financial Life Management (or “FinLife” for short) is about taking a holistic view of and providing advice at the intersection of a household’s life and financial decisions.
Relative to how most firms implement wealth management – which includes the discretionary management of investment portfolios – the key distinction here is that Financial Life Management would be about more than just managing the client’s investments (or their “wealth” as a wealth management firm). Instead, the focus is on all the intersections of the client’s life and financial decisions.
FinLife Consumer Research
In fact, United Capital commissioned Riedel Strategy to conduct an interesting “FinLife” research study to evaluate the question of how consumers think about their own financial lives, and whether it conforms to the industry’s traditional approach – that an individual’s financial life is built primarily towards saving and investment (and then living in) retirement (or at least, is focused on achieving financial independence).
Yet in the process of asking clients to talk about their own life story in the context of their finances (i.e., their “financial life story”), the research revealed that for most people their financial life story focuses remarkably little on saving and investing behaviors. Instead, the bulk of the key “chapters” of one’s financial life story are oriented around working and spending decisions (such that investing and savings behaviors are simply a by-product of the decisions in those other categories)!
In turn, the key turning points for most people in their own life stories were the moments that entailed significant financial trade-offs, from the decision to live close to home or far away, send children to public or private school, take a high-paying stressful job over a lower-stress one with less pay, or pursuing job stability versus starting a new business. Yet even in these situations, the research found that the financial or money aspects of the decision are generally not the driver of the choice; instead, consumers try to make such decisions to align with their personal values (as the study puts it, we strive towards their “ideal selves”), and then try to assess the financial consequences of the desired choice.
From the perspective of traditional financial planning and wealth management, though, the results of the United Capital research suggest that our typical savings-and-investment-centric focus is not actually how most consumers think through their financial issues and make significant life decisions. Instead, savings and investment are the outcomes of those other working and spending-related life decisions. Which means giving truly effective financial advice requires de-emphasizing portfolios and the making of contributions to them (not that those aren’t relevant to financial success, but that those outcomes aren’t the basis for how most consumers make real-world decisions!).
Is Financial Life Management Really What Financial Advisors Do (Already)?
Arguably, some financial planners might already claim that financial life management isn’t anything novel or unique; it’s simply our current world of comprehensive financial planning when it’s actually done “right” and in a holistic client-centric manner. And “life planning” industry pioneers like Mitch Anthony and George Kinder have suggested for years that good financial planning starts with focusing on a client’s personal values, and that financial decisions flow from the pursuit of non-financial life goals.
Accordingly, perhaps the reality is that Financial Life Management is really little more than a label for the combination of financial planning and life planning – two disciplines that already exist, merged into what is arguably a better holistic term of “Financial Life Management” or “FinLife” that is more intuitively understandable for consumers.
And in point of fact, the reality is that there were people providing wealth management services long before the wealth management label appeared, just as the origination of financial planning – in the form of creating the Certified Financial Planner (CFP) marks – predated the rise and popular use of the “financial planner” term by a decade or two. In this context, the fact that many financial planners and wealth managers might already be doing Financial Life Management doesn’t mean we can’t still have a new/better/clearer term to articulate the service model going forward (and differentiate from the other financial planners and wealth managers who don’t actually deliver on it).
In other words, just as saying you were a financial planner was an effective way to differentiate from stockbrokers and insurance agents who may have already also been giving financial planning advice (but didn’t hold out as such), and the same for holistic wealth managers trying to differentiate from financial planners, so too may Financial Life Management emerge as a new way to label this new constellation of even-more-client-centric and even-more-holistically-oriented financial advice and client service model. Although ironically, if the label does gain traction, we may find someday a large number of advisors claiming to do Financial Life Management even though they don’t really deliver it, just as today there are a number of “financial planners” and “wealth managers” who don’t really have the expertise to provide it!
Are Financial Advisors Really Prepared To Offer A Financial Life Management Service Model?
Notably, as with the other “financial advisor” transitions over the years, the industry’s evolutions to subsequent stages of “advisor value-add” are about more than just adopting a new label and tagline as a marketing differentiator. Each step also involves developing new core competencies, new service model capabilities, and in most instances an entirely new business model as well.
For instance, as the United Capital research shows, if you ask someone about their “financial life story” or more simply what their “financial lifeblood” is, the answers revolve almost entirely around their work (i.e., their human capital and ability to earn income), and their spending (i.e., cash flow). It’s not their investment savings and retirement accounts.
In turn, this suggests that career advice and “human capital management” (not to mention adjusting the risk exposure of the portfolio around the investor’s human capital) may be a core service in a future Financial Life Management model. Particularly if the future entails a world of “financial independence” that may or may not continue to include “work” of some sort even after reaching the point of traditional retirement. Yet it’s quite notable that while the United Capital research finds that for most people, work and career decisions comprise the biggest segment of their financial life stories, the typical financial advisor skillset (and our product-centric financial planning software!) has almost no tools to address this. In fact, not a single one of the CFP Board’s 78 Principal Topics of the CFP curriculum addresses anything about helping a client to earn more income from employment!
Similarly, most financial planners – and the software tools we use – are also remarkably weak in providing advice and guidance around cash flow and spending decisions. At least “cash flow management” is one of the 78 Principal CFP Topics, but it’s only in the past year or two that several Personal Financial Management (PFM) software solutions for financial advisors have even begun to incorporate cash flow tracking tools (despite the fact that Mint.com has done so for a decade!). Even then, most of us financial advisors seem to take on little active involvement in helping clients determine if their spending is “reasonable” or not, and we certainly don’t provide any kind of proactive “cash flow management” services (e.g., bill paying)… even though ironically if you actually do a Google search for someone who provides a “financial life management service” that’s exactly what you find as a solution! Accordingly, it’s not entirely surprising that United Capital decided to buy the Flexscore digital planning tool, which has unique capabilities to help clients monitor their cash flow and progress towards spending goals, as a step towards being a more cash-flow-centric Financial Life Management firm. And more recently, rolled out a "FinLife Partners" platform for other advisors to use their technology to deliver on the FinLife value proposition.
And of course, if financial planners and wealth managers really are going to evolve away from a portfolio-centric investment management service into these more holistic Financial Life Management services, the AUM business model altogether may start to seem less and less relevant. This isn’t entirely surprising, as every major evolutionary change of financial advisors has entailed some significant shift in business model as well… from stockbrokers and insurance agents selling their company products, to financial advisors independently brokering any company’s products, to financial planners getting paid for financial planning itself, wealth managers getting paid through AUM, etc.
What would the new business model of Financial Life Management entail? Most likely, some form of financial planning retainer fees, either as an annual or monthly financial life management retainer, or perhaps some form of income-and-net-worth retainer fee. Which in turn opens up a new set of clientele who may not even have the assets for a traditional wealth management AUM model (but does have the interest and financial wherewithal to pay for financial life management).
In the end, I will admit that I’m not entirely certain “Financial Life Management” will be the term that sticks for the emerging new model of holistic financial advice. It’s as good as any label, but given that United Capital’s own research shows that someone’s “FinLife” is primarily about career and spending decisions – areas in which most financial advisors are currently weak, both in terms of software tools to support us, a skillset and service model to deliver, and a business model that’s aligned with it – we arguably still have a long ways to go in our evolution if Financial Life Management is the future we’re really going to deliver upon. Nonetheless, with the ever-growing differentiation pressures growing on most financial advisors, it seems the time is ripe for a new term to emerge and the next stage of advisor evolution to get underway!
So what do you think? Is Financial Life Management a good label for the future of financial advice? Are advisory firms really prepared to deliver on Financial Life Management? Will there be a new business model to emerge in this transition?
Folks are going to need a wealth care advocate with an obfuscation meter to navigate and cut through the BS of the financial “services” industry’s many business models, compensation models, acronyms, lingo and titles. What does the industry really want to be when it grows up?
According to the IMCA, Wealth Management is different from Financial Planning and Financial Life Planning. Will advisors expand their “Planning” skills to be able to offer Wealth Management and will “Financial Life Management” include “Wealth Management?”
Is FinLife the best name money could conjure? ‘Life’ has always been code for death in the advice industry — as in your loved ones getting paid upon delivery of your death certificate.
Brooke,
That may be the industry’s view of “life”, but I don’t think it’s the prevailing consumer view. FinLife “works” (or not) by consumer perceptions, not industry jargon?
– Michael
I think that among younger clients, this term fits most appropriately. These people who are earlier in their life cycle have much more tied up into human capital and far more to gain from optimized spending. The other thing this term does is focus more on the person than the things the person possesses. Well at least it acknowledges that “life” is what matters here. It lends itself more to a utility theory type of analysis as to how economic decision making should occur. I dig it.
What? PacLife, MetLife and New York Life are industry jargon?
Great points Michael! First, I would love to see more holistic software out there, and I have an hunch that that topics covered are limited on purpose. It would be really interesting to see a list of subject matters needed by the next generation of planners.
This is where my approach is really coming to life. I have an hons degree in psychology and a number of post grad psych awards. I can take this to a whole new level. Changing your badge… people will do it…
I think that someone missed the boat that this is something new.
In fact, it was in the 1980s, that a Financial Planner, Thomas Leonard, who is called the father of the profession of Life Coaching. He started it because his clients were asking him for help is the area of life issues — and in his case, he enjoyed helping them with their careers, business, and managing their lives more than helping them with the financial planning side. https://www.coachville.com/home/html/about_thomas_leonard
It’s great for advisor clients read books on coaching and consulting and take some courses in those areas, because it’s good that we can provide our clients with the help they need or referrals to vetted services. Especially read books on pricing tips from other industries.
However, I highly recommend, that if an advisor is interested in being a coach that they attend a coaching school — like Coach U or Coachville to add those extra skills into their long list of skills. OR if not, know your limits and be willing to say “I don’t know” and I’ll find you someone who can help when that’s the truth.
Or if you’re a planner or advisor who doesn’t enjoy being a Life (career or business) Coach, too, then there you’ve found an opportunity to add a new paid concierge service to the services you provide your clients whose plan isn’t getting executed because they need the services of a life, career, or business coach/advisor/consultant/contractor.
Love this! These issues and the needs discussed in the article highlight the reason I decided to pursue an AFC (Accredited Financial Counselor) designation instead of a CFP designation.
Most advanced life insurance focused agents/advisors have been focusing in these areas for a long time. Those who have practiced LEAP, MoneyTrax’s Circle of Wealth, Insurance Pro Shop’s Found Money Management… all practice this on some level using permanent life insurance as the core foundation. Commissions from life sales are the core compensation for these advisors.
Granted, they usually don’t have very favorable “industry” titles: “LEAPers” as they were called wasn’t exactly a favorable title. The Insurance Pro Shop uses the title “Certified Found Money Manager” for those who attended live training. I myself, use the title “Lifetime Wealth and Retirement Manager”. Using the term “life” in this context isn’t about the product, but about the anticipated benefits for working with me.
If you look at the IARFC association’s mission statement, they promote this as an industry association: “The IARFC serves the professional consultants who help their clients wisely spend, save, invest, insure and plan for the future in order to achieve financial independence and peace of mind.”
If and when this becomes popular, brokers/salesmen will add it to their moniker. As it is now, these salespeople call themselves financial advisors. Most “advisors” know nothing about markets except to sell products. Investing should be a separate category and most “advisors” should just guide their clients into index funds. But, they can’t make the big commissions so that won’t happen
Sadly, the reality is that legally, investment advice IS a separate category from brokers/salesmen. The SEC just doesn’t enforce it. 🙁 See https://www.kitces.com/blog/is-the-sec-failing-to-enforce-the-solely-incidental-advice-exemption-for-broker-dealers-under-the-investment-advisers-act-of-1940/
– Michael
Very true. Over the last few, if not longer, years, I’ve noticed that there are no longer “brokers, or stock brokers” in the business. They are all financial advisors or financial consultants, or VP’s.
When I got into the business years ago, I joined IDS/American Express, which I think is now part of Ameriprise. I came from the high tech industry, and after a few weeks of remedial training, on topics such as ‘what is a mutual fund and how does it work’, I was ready to go. My title on my business card? Personal Financial Planner.
I meant to add, it was a 100% commissioned sales job. Nothing else. I was very disappointed.
Definitely see the need for a focus more on life planning for everyone from Millennials to Baby Boomers. I’ve naturally focused on life goals and values within my planning practice but now it’s becoming more central. I’m even partnering with a life coach/financial planner. I think the terms circulating our industry however, don’t help and the more we add the more confusing it gets for the client. Financial planner, financial advisor, life planner, financial therapist, financial counselor, the list goes on. I think within our industry it may help differentiate but it may not help the client understand the service they should expect or what they are paying for. As far as a business model, I like your idea of retainer fees. That being said if a client is already paying AUM fees I find it hard to charge them more, life planning/ financial planning should be included. I hate that so much of the industry (not all) already charges AUM fees and don’t provide much in the way of life/financial planning. Great article!
Nice post. So what’s in a name or label – best to measure what’s done so for me, I don’t see that there is a significant problem or issue. As long as the financial solutions suit those seeking advice. The main goal is to provide quality advice solutions that benefit both a client’s lifestyle and financial outcomes.