Executive Summary
As financial planning begins its transition into the digital age, the tools and technology that we use to deliver financial planning will change. Increasing use of account aggregation platforms by consumers like Mint.com will mean that clients come to the first meeting with their financial lives already detailed, from a net worth statement to asset allocation details to a breakdown of cash flow. This in turn will allow planners to greatly expedite the planning process - plugging in data immediately in the first meeting to begin crafting financial planning projections live, with clients, who discuss and input their goals on the spot. The end result - an electronic plan, as there will be no need for paper - will provide clients with both actionable steps and recommendations, and the ability to drill down for further detail (through the client software) if they wish. And the entire process will be completed not in a series of meetings, split up by a multi-week break for analysis, but instead in a single meeting, drastically enhancing the efficiency and productivity of the process for both the client and the planner. In turn, though, planners will be forced to add value not by just helping clients get their financial house in order - thanks to technology, it will already be in order! - but by actually delivering quality advice and a good planning experience!
The inspiration for today's blog post is an extension of my post a few weeks ago about "3 Ways The Digital Age Will Change Financial Planning In The Next 10 Years" where I began to explore how the delivery of financial planning will change in the future. I expect that as software and hardware technology continue to evolve, and our planning process itself will undergo a dramatic change, that both enhances the client experience, and improves our efficiency as planners.
For instance, in the digital age, the first financial planning meeting - which is traditional a long, drawn out data gathering meeting that works through the minutiae of documents and a fact-finding discussion with the client, just to accumulate a list of detailed information and goals that can be analyzed behind the scenes - might look something more like this:
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- As more sophisticated account aggregation tools like Mint.com go mainstream, more and more people will have access to their own personal financial dashboard. Accordingly, when a client starts a relationship with a new planner, the planner will request a connection to the new client's dashboard, and once the client grants access, the planner can log into a website to see the financial details of the client. This would include not only aggregation of financial accounts, that can provide a glimpse of everything from the client's net worth statement to the current asset allocation, but also aggregation of debit/credit card expenditures that would provide an effective snapshot of household spending and budgeting. The financials portion of the data gathering process is significantly curtailed. For clients who have never set up a financial dashboard, an ancillary service of financial planners might be helping clients to do so for the first time, as a supplement to the data gathering process itself.
- The client's financial dashboard information is imported into the planner's financial planning software, to which the planner adds details about the client's stated financial goals. This allows for an immediate snapshot of where the client stands relative to goals. The client then has the opportunity, live and on the spot with the planner, to begin to adjust goals - from savings to retirement spending to retirement age - to see the impact of goals on the plan and decide on a course of action.
- Once agreeing upon a course of action, the planner begins to craft recommendations appropriate to achieve the goals. This may include amounts to save (derived from the agreed upon plan), where to save (e.g., IRAs, Roth IRAs, 401(k), taxable accounts, 529 plans, etc.), and how to invest the savings (i.e., asset allocation). For a retired client, this might include how much to safely spend, and what accounts to draw spending from in a tax-efficient manner.
- At the end of the meeting, the client receives electronic access to the financial plan analysis and a list of action items and recommendations. This 'electronic financial plan' allows the client to click (or tap!) through to see the underlying details of the projections (and change/tinker with them), or to get more information and details about the recommendations. For instance, clicking/tapping through on the recommendation "Save $5,000/year in your Roth IRA" would provide information about what a Roth IRA is, how it works, what rules for qualified distributions, etc., so the client can drill down to as much or as little additional detail as desired.
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What's notable about the financial planning meeting above is that it was one meeting - and it encapsulated everything from 'data gathering' pertaining to goals, to the live crafting of an accumulation/distribution plan, to the development of action items the client can walk away with. Of course, for the client who had not already established his/her own financial dashboard, an initial client data gathering meeting might be likely, where the planner works with the client to get organized by connecting electronic accounts, scanning electronic documents, etc. But for clients who are already digitally plugged in - which will be more and more of them - what traditionally might have been a 2-hour meeting, followed by 2 weeks spending half a dozen or a dozen hours or more, followed by another 2-hour meeting, all encumbered by software, instead has become a single 2-hour meeting with an immediate outcome for the client! Talk about a productivity enhancement for the planner!
On the other hand, the caveat is that this ultimately does not capture the entire financial plan. A subsequent meeting or two would have to occur to review insurance-related issues, and estate planning, which can be more time consuming due to the need to review the client's individual contracts and documents. Nonetheless, the client walks away from the first meeting with a concrete plan with actionable recommendations, and the client has buy-in to the solutions because the client interactively helped to craft them.
However, the fact that technology will help a client keep their financial house in order means that planners will have to deliver on a value proposition over and above just "helping clients get organized" and providing basic guidance. Instead, differentiation will be based on the expertise of the advice, the quality of the planning experience itself, and the extent to which the client is motivated to action to implement the right solutions, enhanced by both advisor and client software that helps to monitor implementation.
Clearly, the software to accomplish all of this is not quite ready yet, but it's getting closer every year. For instance, MoneyGuidePro's upcoming "G3" release is designed for quicker, easier data entry than ever to get to an initial planning projection, and services like Mint.com (or ByAllAccounts for advisors who want to drive it from their end) do much of the account and spending aggregation already. These tools will only get better with time.
So what do you think? Can you envision this kind of financial planning experience with your clients? Do you use any account aggregation tools now to help expedite the process with your clients? Do you run any of the financial planning projections interactively with your clients? Do you think it would help your clients get buy-in to the plan?
Some good thoughts here, Michael.
You’ve got me thinking about how to better leverage technology for the fact finding part of the meeting. Unfortunately, here in Australia I haven’t come across too many clients who use any kind of financial management software!
Do you think that you’re giving too much away in that initial interview? I know some planners offer a free initial appointment, while others charge for that meeting, but if a client gets that level of advice, what more is there to do for them?
Also, in Australia, I’d have some difficulty with this as my licensee would consider that once we get into problem solving mode and talk strategies with the client that we’re actually giving personal financial advice which means the client needs to receive a Statement of Advice document.
I certainly love the idea of an interactive initial meeting where the client walks away with some fresh ideas, but I’m wondering what the next stage is in this process?
Hi Michael
For us, the hardest part of the financial planning meeting is getting the financial meeting we need, so a tool like mint.com (if it was available in Ireland) would save a lot of time. However, it’s one thing telling me clients how beneficial it is and them actually using it.
When it comes to the actual financial meeting, everything is done in one meeting. We use Truth Financial Planning software and we can change parts of the plan there and then with the client. We are able to run a number of scenarios with our client and then agree on the best course of action. They get a report afterwards and it is on the decisions that they have made themselves.
This open an interesting debate. Do you change differently for those clients that can get their digital lives in order. You know there will be those clients that still come to you that can’t figure out how to get anything done electronically. I don’t believe this is a generational handicap, some folks just don’t get technology.
Chris,
Great question.
I think the reality is that no matter how “fully” integrated technology is in our lives, there will always be people who are less organized (whether it’s keeping papers in files or having an online financial dashboard, no matter how easy Google makes it).
Ultimately, then, I would expect that helping clients to get organized would ultimately become a separate service of the planner. For instance, “For $100, come in for 2 hours and our planning associate will help you use the latest technology to get your financial house organized.” The point here is that it’s a “Get Organized” meeting with a tangible outcome, NOT a data gathering meeting. Whether the person ultimately becomes a client, and you use the organized materials to expedite the planning process, becomes a separate issue (although obviously the firm would hope to “convert” clients from getting organized to full planning, and some firms might offer the get-organized service/meeting as a free addon for new or even prospective clients).
– Michael