Executive Summary
As financial planning firms continue their search for scalability and efficiency, more and more firms are choosing to outsource various aspects of their business, retaining only the core areas where they provide the most value. As a result, Turnkey Asset Management Programs (TAMPs) have exploded in recent years, as more and more planning firms outsource their investment process to focus on their financial planning services.
However, a new option is beginning to emerge - the Turnkey Financial Planning Program (TFPP), designed to be a holistic one-stop shop for starting a financial planning practice. And as signaled by LPL's recent announcement to acquire Veritat, one of the early TFPP platforms, building an effective TFPP can be a valuable business proposition itself, in addition to being an appealing offering for the growing financial planning firm.
In fact, arguably the TFPP is a glimpse at the broker-dealer of the future - a core offering for financial planning firms, once the other parts that are unnecessary for a financial planning practice are stripped out - and may also represent a way for RIAs to grow as well. So forget the TAMP - it's time for the TFPP.
The inspiration for today's blog post was the recent announcement that LPL has acquired Veritat, as an expansion of LPL's efforts to help advisors reach the massive middle market largely unserved by financial planners. What's interesting about the acquisition is not LPL's involvement, per se, but the tacit acknowledgement in the deal that what Veritat brought to the table was a unique platform for doing financial planning for the mass market.
In point of fact, I believe this is just the front end of what will be a new trend and a new way to grow a financial planning practice - just as the Turnkey Asset Management Program (TAMPs) has exploded in popularity over the past decade, in the next decade the real growth opportunity is the Turnkey Financial Planning Program (TFPP). Growing firms will want to affiliate with them, and financial planners will want to affiliate with them.
What Is A Turnkey Financial Planning Platform (TFPP)?
As this is an emerging new trend, there's no concrete definition of what a Turnkey Financial Planning Platform (TFPP) is.
But I would characterize a TFPP as a firm that provides at least a majority (although not necessarily all) of the following:
- Template for a viable individual business model
- Infrastructure necessary to conduct a financial planning business (e.g., an investment custodian relationship, compliance support, capacity to sweep fees or process financial plan payments, etc.)
- Operational support
- Institutionalized investment management offering/story or access to outside TAMPs to accomplish the same goal
- Financial planning process, templates, and financial planning software
- Access to CRM and portfolio management software
- Branding, marketing support, and/or lead generation
- Practice management advice
- Access to fellow planners on the platform for support and community
While many of the offerings above are part of a typical TAMP, the TFPP platform is broader. It includes not only the core investment capabilities required for any type of AUM-style model, it also includes similar capabilities and support for the financial planning process and implementation, may include deeper practice management, branding, and marketing support, and is generally designed to be a holistic platform on which the entire financial planning practice is run, not just the investment part of the business.
TFPPs And The Search For Economies Of Scale
Why would a financial planner choose to affiliate themselves with a TFPP? In a word: scale. The greatest challenge in running a financial planning practice in today's environment is growing the firm to a point that investments in staff and infrastructure begin to scale effectively. In point of fact, most firms struggle so badly with a lack of scalability, that the trend towards outsourcing has exploded, because "renting" a piece of someone else's scale is far more cost-effective than a small- to mid-sized firm making its own investment in staff, infrastructure, or other resources (and outsourcing elements of a financial planning firm is increasingly feasible in the digital age).
The availability of a TFPP gives the financial planner access to the benefits of scale, but without the piecemeal challenge of scraping the parts together one at a time (which, itself, is still a somewhat inefficient process). Another upshot to the TFPP is that if the firm is also an ongoing larger financial planning practice itself, it may also be available to buy out the planner at the end of the road, providing a build-in exit strategy for the planner's practice (and one that should command a valuation premium, given how easy it would be to transition the practice to another advisor already on the TFPP platform).
Notably, the reality is that broker-dealer firms often provide most or even all of the pieces of the TFPP. The caveat, though, is that the broker-dealer firms often also provide a lot of additional support and services - including a role in fulfilling the implementation of securities products, the original primary purpose of a broker-dealer - and may include alternate or additional lines of business as well. The inclusion in the broker-dealer of services - and their associated costs -that are unnecessary to the core financial planning offering has left most of them poorly prepared or uncompetitive with the rise of TFPPs.
Current And Emerging Turnkey Financial Planning Platforms (TFPPs)
Arguably, the first real TFPP may have been the Garrett Planning Network, which included most of the previously listed core components of a TFPP, including a template for a viable business structure, resources to support the delivery of financial planning, and a community of other advisors with similar businesses on the platform. The early Garrett TFPP did not include many of the investment management components that may be more popular in future TFPPs, for the simple reason that at the time, the focus of the Garrett business model was hourly financial planning advice and wasn't intended to include an AUM component (although Garrett is now beginning to offer some additional AUM model support).
Similarly, Veritat was another early TFPP offering, and included not only the business model template, but support for the financial-planning-fee-plus-AUM integration, operational support, core software necessary to run the practice, and even a uniquely developed financial planning software package intended specifically for use with the Veritat advisor's target middle market client. And notably, the Veritat package offering was so compelling, that LPL decided it was more cost effective to buy the platform, rather than build it themselves - a testimony to the enterprise value that can be established by offering a comprehensive TFPP platform for advisors!
It's no coincidence that the early TFPPs have a very unique and particular target market focus and value proposition. To differentiate themselves, TFPPs will need to have a coherent and differentiated philosophy and financial planning (and/or investment) process [just as we have subsequently done with XY Planning Network], and similarly the reality is that today many TAMPs differentiate themselves on their investment story, too (think DFA). But there's no particular reason why the TFPP should be confined to serving the middle market, even though that happens to be the focused of both the Garrett Planning Network and Veritat [and our own XY Planning Network]. The TFPPs have simply started there, because those happen to be market segments where the scalability of a TFPP isn't just helpful, but a minimum requisite to be viable at all.
In the coming years, new entrants to the TFPP marketplace are likely to come from many directions. Broker-dealers will attempt to build them (or buy them, in the case of LPL), in an attempt to attract and retain the emerging breed of comprehensive financial planning who is not fully serviced by "just" facilitating the implementation of insurance and/or securities products, or providing a TAMP for integration. Growing RIAs that have begun to institutionalize their financial planning and investment offerings and support will also likely be a player in this space. And because of the dramatically declining need for the "back office" of a firm to be anywhere near the "front office" where the planner meets with clients, geography itself is almost no constraint in the current world of choosing a platform with which to affiliate.
On a personal note, I've seen these trends occurring in several of my own businesses. One of the requests we are hearing more often in our recruiting business is from the RIA that wants to take on an advisor with an existing practice and book of clients, who might be interested in the firm's size, scale, brand, and support to build their business further. In fact, our own firm Pinnacle Advisory Group is beginning to hire financial planners with an existing client base who are interested in affiliating with the firm, expanding their business, and building their own business in their own geographic area on the Pinnacle platform (treating our firm as their TFPP, rather than simply using the Pinnacle TAMP-style offering). [And as noted earlier, we launched XY Planning Network as a TFPP as well, specifically targeted towards helping Gen X and Gen Y advisors build an advisory firm serving their Gen X and Gen Y peers.]
So what do you think? Do you consider firms like Garrett Planning Network and Veritat to be a unique platform offering? Do you think there's value to a comprehensive TFPP platform, above and beyond what TAMPs already offer? Is the TFPP the future of broker-dealers?
Great piece Michael. The TFPP is perfect for advisors in transition and those looking to create a full service client experience without building out internal staff and infrastructure. In our experience in providing a TFPP, the most difficult matches are existing firms trying to convert to this model with legacy fee structures.
Regards,
Jeremy
Interesting concept. Based on my understanding, I think GPN is something of the TFPP sort, but perhaps not in all respects. It has largely been a super ‘practice starter kit’ and does offer continuing peer support through an online community, but purposely leaves the affiliated planner with great flexibility in how to build out his/her practice (e.g. choice of software, custodians, etc.). It also offers templates and some back office tools, but last I checked, GPN doesn’t do the work for you (e.g. you handle your own billing, not GPN).
I think there’s definitely room in the world for TFPP, but it won’t solve the argument about what constitutes ‘real’ fp. Bottom line, fp is a very personal kind of business, and the more conformity and structure achieved through outsourcing often represents a compromise of one’s uniqueness on some level. The key will be finding a way to achieve scale with minimal compromises — that is to say, enable me to build a fp empire that is uniquely me. Whatever TFPP solves that the best will eventually gain predominant market share.
Respectfully,
Dan