Executive Summary
For its entire history, financial planning has been about sitting down across from clients, face-to-face, and talking them through solutions to their financial planning challenges. Finding clients was about in-person meetings, getting clients was about in-person meetings, and serving clients was about in-person meeting.
Yet the rise of technology is creating a new service model for financial planning – the “virtual” advisor, who uses web-based tools and technology to serve clients, regardless of where the client (or advisor) happens to be. And these “location-independent” advisors are able to serve new and different types of clientele, thanks to both the cost savings and efficiency of using technology in lieu of a traditional office, and the potential to craft an especially focused business serving a niche clientele that becomes feasible in the world of content and inbound marketing.
In point of fact, the growth of online financial advice (not just via "robo-advisor" but delivered by human advisors using technology) is already underway – fueling the growth of platforms from Personal Capital to Vanguard Personal Advisor Services – and an increasing number of existing advisors are beginning to use more technology tools to serve their clients as well. But as a new e-book entitled “The Virtual Advisor” by Alan Moore points out, the new location-independent virtual advisor model may be most appealing to the next generation of financial advisors, who will have the opportunity not to just create a life around the business of financial advice, but instead to create an advisory business around living their own great life.
The Appeal Of Being A Virtual Advisor – The Location-Independent Business Model
One of the great challenges of building an advisory firm is that with a physical office presence, it’s difficult to stray far from the office. The advisor must be there regularly to meet with clients, or at least to be available to them. An office infrastructure gets built around it, that in turn must be managed as well. And suddenly the advisory firm that was created to be financially fulfilling and eventually – hopefully! – lead to financial freedom, has instead become a financial tether, punctuated by occasional vacations (if feasible!). The advisor is forced to build his/her life around the business.
By contrast, a recent e-book from XY Planning Network co-founder Alan Moore, entitled “The Virtual Advisor”, makes the case that the best way for advisors to avoid this challenge is to adopt a ‘location-independent’ virtual advisory practice. In this context, a “virtual advisor” is one who works virtually – i.e., online – with clients. Meetings are conducted by the increasingly acceptable means of video chat, other client communication is handled via email and/or telephone, and no clients meetings occur in person at all. And without meeting in person, there’s no longer a need to even have an office.
In fact, if client meetings can occur ‘virtually’ using technology, the reality is that it no longer even matters where the advisor is in the first place. After all, anywhere there’s a viable broadband internet connection, the advisor can conduct a video meeting with a client – whether it’s from a home office, a vacation home, or just on vacation. In other words, the location of the advisor and/or the firm becomes entirely independent of where the clients happen to be. It is a “location-independent” virtual advisory firm, where the advisor doesn’t have to build a life around the business, and instead can build a business around his/her life.
Required Technology To Operate As A Virtual Financial Advisor
In the past, operating a location-independent advisory firm wouldn’t have been possible, because the required technology simply wasn’t portable enough in the first place. Essential advisory software tools required servers, and a server is not exactly something you can just pack up and take with you wherever you go.
In today’s environment, however, accessing “the cloud” via the internet really does make it possible to have access to the key information and software necessary to run an advisory firm, without actually taking that information – or the servers to store and operate it – with you. Instead, everything lives on servers housed in secure server farms, and the advisor simply uses the internet – thanks to the widespread availability of broadband connectivity – to access the requisite software and information wherever he/she happens to be. It’s like having a personal server with all the tools and technology necessary to run the practice, and a flexible extension cord that reaches anywhere in the world to plug in and access it!
In this context, key software and technology tools include:
- Cloud-Based File Storage. Available options include solutions like Google Drive, Dropbox, Box, and more.
- Virtual Meeting Software. The rising popularity of virtual communications across a wide range of industries has created a boom in virtual meeting tools, from simple and free solutions like Google Hangouts and Skype, to ‘premium’ (but still relatively inexpensive) options like GoToMeeting.
- Client Information/Reporting Tools. Account aggregation tools like Blueleaf, ByAllAccounts, and Yodlee allow advisors to provide clients with an online portal to access their own investment (and often other information as well) whenever they wish, eliminating any need for the advisor to create and print physical reports.
- (Virtual) Phone System. Options here include an entire virtual phone system like Grasshopper, to a free forwarding and voicemail service like Google Voice, to having a virtual receptionist as part-time staff support via Ruby Receptionist.
In addition, The Virtual Advisor also includes recommendations in other key software areas, including Accounting/Payroll systems, advisor CRM software, eSignature solutions, and financial planning software, along with other efficiency tools that are important for the ‘mobile’ advisor including meeting scheduler tools, password management solutions, and software backup services.
Of course, perhaps the most important tool for the virtual advisor is simply to have a high-quality computer to use in the first place. Those who are still based primarily in a physical location that just happens to not be a traditional office (e.g., a home office) may simply purchase a high-quality desktop computer. On the other hand, those who truly intend to use their “location independence” as a virtual advisor to engage in more travel and meet with clients from anywhere may prefer to invest into a high-quality laptop that can live up to the stress of travel. Purchasing a mobile hotspot to have 4G internet connectivity from anywhere may also be appealing (if not already built into the laptop).
Notably, while a virtual financial advisory firm will generally be entirely paperless – to facilitate accessing and managing information virtually – in some cases, physical paper documents do still need to be mailed to the advisor. For those who actually intend to be not just location-independent, but actually location-mobile (i.e., traveling and meeting with clients virtually from anywhere/everywhere), a ‘virtual’ mailing address may be appealing to collect mail and digitize it – services like Traveling Mailbox will actually collect mail, scan it, and upload it to a secure online portal for advisors to access (and without ever being required to give out a personal address or maintain a physical office location!).
(Content And Inbound) Marketing As A Virtual Financial Advisor
One of the greatest virtues of structuring an advisory firm to operate virtually, is that without relying on in-person meetings, the virtual advisor is no longer constrained to just his/her local market to find clients. Instead, the virtual advisor can theoretically work with anyone anywhere in the world. Which in turn means one of the greatest challenges of being a virtual advisor is figuring out how to market and stand out in an online world, where anyone can work with anyone else anywhere!
In practice, though, the key to successfully marketing online is all about one word: differentiation. By having a clear niche and/or some kind of specialization, the virtual advisor has an opportunity to establish themselves as a recognized expert for a particular type of clientele. Which means now the power of the internet begins to work to the advisor’s favor, as the advisor’s prospective clients search online for solutions, and find their way to the advisor.
This type of approach, dubbed “inbound marketing”, works especially well for advisors with a focused niche or specialization. The advisor can create a blog, share his/her expertise via writing, or video, or a podcast, and create the opportunity for consumers to find their way to the advisor, through that content. And the advisor can further establish his/her expertise by sharing that content out via social media, engaging (virtually) with other centers of influence in the target niche, creating the opportunity for further (virtual) referrals. And with the media increasingly using social media platforms like Twitter to find sources, the virtual advisor who is a recognized expert in a particular area can even gather the attention of the traditional media, too.
Notably, though, some advisors who work virtually may still actually focus in a local market as well. After all, in a busy metropolitan area, being able to meet with clients virtually – and save them the 2 hours of round-trip driving in traffic that’s necessary just to accomplish a 1-hour in-person meeting – can still be a huge benefit for the client. Especially if working with those who are especially time-constrained, but busy executives and entrepreneurs, to harried Gen X parents. Even if those clients are referred by being involved in a local networking group to begin with, or even from other advisors who serve a different type of clientele and want to refer a mismatched prospect to someone else who’s a better match (like the virtual advisor!).
Adopting The Virtual Advisor Approach And Alternative Advisor Business Models
For advisors who are already accustomed to serving clients in-person, the transition to a virtual advisor model can be gradual. It doesn’t have to be all-or-none, nor does it have to be done all at once. In fact, the easiest way for an existing advisor to transition to a (more) virtual model is to start with existing client relationships, and only focus on getting new (online) clients second. In other words, as an existing advisor, don’t worry yet about how to get new clients online (and then figuring out how to serve them virtually); instead, simply focus on starting to work with some existing clients on a virtual basis using the available tools and technology, and expand the service over time to eventually be available for new clients too.
For new advisors starting a firm, though, the appeal of the virtual model from day one is that it allows for the advisor to launch a less expensive and lower-cost model from the start - a trend that several large firms have already begun to capitalize upon, from Personal Capital to Vanguard Personal Advisor Services. From the perspective of an independent advisor just getting started, though, the virtual advisor model gives a new advisor the opportunity to make their website their “first impression” for clients and their virtual office storefront, maintaining credibility while eliminating any need for the cost of physical office space (including not just the office lease, but all the ancillary costs including utilities, internet, cleaning, furnishings, and liability insurance!). In turn, the lower cost to maintain the business (without an office, or perhaps just using public spaces or an inexpensive co-working space) puts less pressure on the “income gap” that new advisors struggle with (those early years of low income until there are enough ongoing clients to maintain the advisor’s standard of living).
Though as some of the advisor case studies illustrate in Moore’s “The Virtual Advisor”, the benefit of operating virtually is not just that it’s possible to launch a new advisory firm at a lower expense to the advisor, but that it becomes more feasible to serve clients with new and different business models, opening the door to new types of clientele that advisors have not traditionally served. For instance, many of the advisors profiled in Moore’s e-book work with niches like Gen Y, young families, and the military – client segments that have been traditionally underserved by comprehensive financial planning, on the belief that “they can’t be served profitably”… at least, until they’re served with a lower cost virtual business model!
Ultimately, though, Moore’s key point is perhaps a simpler one. As advisors, we often counsel clients to use their human and financial capital to get the best “Return on Life”, or as Moore puts it: to help clients live their great life. Accordingly, then, the real purpose of operating as a location-independent virtual advisor is to allow the advisor to take the advice and live his/her own great life, too.
In the meantime, you can download a copy of Moore’s “The Virtual Advisor” e-book directly on the XY Planning Network site.
Disclosure: Michael Kitces is a co-founder of the XY Planning Network, which was mentioned in this article.
You pulled this together nicely, Michael, just as you did at our FPAMA annual retreat on Cape Cod. This resonates with me because I have about half my clients spread across the country and have been using cloud storage for all client files for a couple of years and GTM for client meetings for at least four years. My cell phone delivers a hotspot and I was recently on vacation in FL and hosted a GTM session from my laptop for a pro bono leadership role I play. I am often bemused by some of the pushback I hear from the more traditional among us. I’m usually one of the older guys in the room, yet I do get it totally. Wish I were going to be active long enough to participate in “the revolution”. I too am convinced robo-advisors are less of a threat to true financial planners than they are to those who “just” do investment advisory work. They have to worry because they truly are being commoditized and with a commodity price is king.
Michael,
Great post! I am personally a big fan of Technology and what it brings for us all to be more effective. And sure, I believe this is likely the paradigm shift to how financial planning will be practiced in future. As I see financial planning trending towards on-demand consulting / coaching in the foreground + Analyzing data / Managing Investments in the background + an occasional checkup call, “Virtual Advisor” seems more effective ( for both clients and advisors), and perhaps a reality in near future..
Great discussion, I am a hybrid. I have a small “meeting” space that I rent for meeting with prospects and clients in town ( those who want to meet) but otherwise I am on my laptop. I use Emoney for financial planning and that has it’s own cloud storage and account aggregation. My website and my young clients are my marketing. My business is growing across the country so there may be a day when I don’t even rent that “meeting” space.
That’s awesome JT!
Is your “meeting” space a permanent space you lease,or are you using a conference-room-on-demand solution like Regus?
– Michael
Hi Michael,
I was able to rent a small office space near a local hospital, this makes it very easy for the local docs to meet with me. As my business expands across the country I will more than likely close that meeting space down. I rented it because it was cumbersome and loud at area starbucks for those who need to meet in person. I only use my meeting space to meet clients, I don’t actually sit there and work all day although I could.
Excellent stuff. My firm tries to handle all of our meetings with our middle class clients (this is our client base) with video session. There are fantastic tools that can assist in making the sessions very meaningful for clients. It also enables us to keep our costs very low for our clients as well since we can handle a much larger volume of clients.
Michael,
This is a great and timely topic, and a source of “lively” discussion with my broker-dealer compliance office. They insist that FINRA requires a permanent office space. I cannot find any language in the FINRA rules that states a permanent office is required to be declared a “branch office”, and I certainly do not want to hold my residence out to the public as an office. Most of the regulations discuss “exclusions” to the branch office rule, but not the requirements for a branch office itself.
Last year, I called FINRA. The FINRA rep would not tell me whether or not a permanent office is required! He stated that the interpretation is up to my b/d!
The issue seems to hover around security of the client files, mail and checks. My office is paperless, and a copy is kept at the b/d, and I keep a copy in secured cloud storage with Redtail (approved by my b/d). As far as checks, I don’t custody them. I send the client a paid Fedex envelope to send to the custodian, or on the rare occasion I mail myself, it goes out the same day, and I never instruct a client to mail a check to my office — always directly to the custodian or b/d. Here’s an article written by a former FINRA executive that appears to support:the virtual office as a branch office: http://mitchatkinsfinrabrokerdealerconsulting.com/branch-offices-in-executive-suites-absolutely/
Right now I have basically 2 offices — one that receives mail w/ a small permanent office (which I rarely use), and another Regus office where I meet clients. The Regus office is MUCH nicer, easier parking, and I can use all 40 of the Atlanta area offices– which gives me great flexibility to meet a client or prospect closer to where they live, and still maintain an office environment. with receptionist, break-room, copier, fax, etc. People really appreciate the convenience given the traffic issues in Atlanta.
I’d LOVE to eliminate the permanent office since I rarely use it, and it would free up cash flow that could be used for marketing purposes. Just feels like such a waste only to comply to a rule that I’m not sure even exists. I only have it b/c my b/d says that FINRA requires a permanent space if I’m to hold that address out to the public.
Michael, please shed some light on the regulations. I’d GREATLY appreciate it.
Mike S.
Mike, I have some experience with my large b/d on this topic….we actually created a firm compliance-approved workaround that allows us to (mostly) avoid the silliness you describe. Give me a shout and I can explain.
Sean Kernan, 469-893-0067, 360wm.net
Thanks Sean! I will call you Monday. You can reach me at [email protected].
I love the idea of leveraging social media and online tools to serve clients around the country, and I wonder how it might be implemented at my own firm. But I can’t help but perceive some of the difficulties that an adviser might face. Like how do you handle the technologically challenged clients? How does video chat change the dynamic of a client relationship? I can’t imagine trying to comfort a widow over her stress/fear of new financial responsibilities via skype. And do you see any issues with client turnover/longevity with a virtual practice? (Easy to ditch the advisor you’ve never met before…). I’d be interested to hear from those who are pioneering the virtual practice.
Excellent article. Do any of you that have gone virtual or somewhat virtual can tell me in your experience what works better regarding the handling of incoming calls, auto attendant vs. live agent? I wonder what clients react better to when you’re not available, a live person telling them you’re in a meeting and will get back to them and transfers them to your voicemail afterward or an automated voicemail? I wonder if the live person has a better response with clients even if that person cannot help them in any way other than transfer them. I’m using an auto attendant right now but recently moved to a different state and will most likely be getting a local virtual office at the new place and I’m wondering if I should keep the auto attendant or use the live operator that comes with the virtual office.I feel like reaching a liver person holds more value so I’d love your input on the topic. Thank you!
Telefianancialhealth why not?:)