In recent years, the financial planning profession has seen a growing shift in the services that financial advisors offer to their clients. Whereas in the earliest years of the profession, advisors primarily provided clients with product-based offerings such as insurance, annuity, and investment products, the focus of many advisors today has shifted to service-based offerings around the ‘advice’ itself.  Interestingly, though, the shift to service-based advice offerings continues to expand, past the ‘traditional’ realms of financial planning advice, as now more and more financial advisors find themselves playing the role of a financial “life coach” to their clients, focusing more on how their clients can develop their goals and establish the financial capacity to realize their dreams (and not ‘just’ recommending the products they’ll implement to get there), and going along with them on the journey to navigate the inevitable shifts and changes that come along the way.

In this guest post, Roger Whitney – Senior Financial Advisor of The Retirement Answer Man, and creator of his “Agile Retirement Management®” process – describes a new financial planning paradigm he calls “Agile Financial Planning” for advisors who want to help clients achieve their financial goals, versus simply creating a one-time financial plan for them. This new model is based on the Agile Manifesto developed in 2001 by a group of software engineers inspired to improve upon the rigid, process-driven “waterfall” style of project management traditionally popular at the time (and that continues to be used effectively today by large corporate businesses). The Agile approach is based on four primary values: 1) individuals and interactions over processes and tools, 2) working software over comprehensive documentation, 3) customer collaboration over contract negotiation, and 4) responding to change over following a plan.

Adapting the tenets of the original Agile Manifesto, Roger developed his own “Agile Financial Planning®” approach, a financial planning process focused on the same objectives of continuous improvement, team input, and a quality (advice) product, with five core principles aimed to help advisors create a high standard for client care: 1) Acceptance that uncertainty is natural and will/should create a need to update strategies for achieving goals; 2) Collaboration between advisors (with financial planning expertise) and clients (with expertise around what makes the most sense for their own lives and situations) in creating a plan will produce more successful results than if the advisor just creates the plan for the client themselves; 3) Flexibility allows for creatively responding to changes in the plan with effective solutions, 4) Prioritizing goals and resources around what’s most important and impactful (versus what might be most attractive but is actually just distracting) will lead to improvement in everyone’s life; and 5) Communication on a continual basis will keep the process moving forward and in alignment with the Agile Financial Plan, providing opportunities to accept and respond to uncertainties as they arise, collaborate, stay flexible, and prioritize.

The Agile Financial Planning process consists of four stages: 1) Feasibility (creating a high-level plan to prioritize clients’ most important goals); 2) Sustainability (analyzing resources to develop resiliency in the plan against market forces and life circumstances); 3) Optimization (choosing the strategies to implement to make the best use of resources when executing the plan); and 4) Iteration (staying in touch with clients to ensure they remain engaged in the process, and keep moving forward with goal-setting and implementation). In turn, clients move through these stages with frequent meetings that Roger refers to as “huddles” and “SMART sprints”. In this context, huddles are brief conversations that take place frequently, and serve to keep the advisor and client in touch with each other, in between the goal-setting SMART sprints – the strategy discussions that help the client determine their next SMART (Sustainable, Measurable, Actionable, Realistic, and Time-Bound) goal to prioritize and then “sprint” to implement. Because Agile Financial Planning is a never-ending project that focuses on managing change.

Ultimately, the key point is that an Agile-style financial planning approach offers a process for financial planners who have chosen to go beyond ‘traditional’ financial planning practices that rely on long, comprehensive, data-gathering meetings upfront, to develop a one-time financial plan that is not frequently (if ever) updated.  Instead, Agile Financial Planners coach clients on developing multiple SMART goals over time, discussed through frequent huddles designed to keep clients both on track and, more importantly, engaged.  Even though the advisor is responsible for managing the process, the process still depends on a dynamic, interactive relationship with participation by both advisor and client, relying on the advisor’s financial planning expertise, and the client’s intimate understanding of their own goals, abilities, and circumstances.

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Since the early days of the financial advisory business, revenue models have evolved to rely less on commissions and more on the recurring income stream generated from the AUM model. The result has been a shift away from an often-one-time sale of a product to an ongoing provision of financial planning and wealth management services. Naturally, AUM-based advisors have had to change how they spend their time, as firms increasingly required advisors to prioritize servicing clients on an ongoing basis (instead of on closing one-time sales of financial products).

Not only have changing business models influenced how advisors spend their time, but as the recently released InvestmentNews Adviser Compensation & Staffing Study reveals, the size of the advisor’s firm also influences how advisors allocate their (limited) hours. As while advisors who own solo practices are more likely to manage all (or most) of the business development and client servicing responsibilities, the larger a firm becomes, the more they rely on support staff to handle client service responsibilities (e.g., paraplanners and service advisors who have little, if any, business development responsibilities). Because with more support staff available to shoulder more of the client-service workload, lead advisors and practicing partners can devote more attention to business development, which ultimately results in higher profit margins. After all, having more affordable support staff manage client servicing is more operationally efficient than having higher-paid advisors deal with these responsibilities. The result is that larger firms tend to have extra capacity (as measured by the number of clients each advisor and support staff can service).

And notwithstanding the rise of the robo-advisor earlier this decade (which stimulated competitive fee compression among financial advisors and caused a dip in advisor productivity), the InvestmentNews study shows that productivity has actually bounced back and now even appears to outpace current trends in increasing revenue! Which suggests that as a firm’s client capacity increases, firms tend to move ‘downmarket’ and target clients that have less assets (versus targeting ultra-high-net-worth clients). As while highly affluent clients may result in more revenue per client, they may also be more labor-intensive for lead and senior advisors (as opposed to associate advisors and staff), which is why larger firms are servicing an increasing number of “mere millionaires”, who can be serviced with scale to a greater degree. Whereas with smaller firms, who don’t have the same ability to leverage economies of scale to successfully shift ‘downmarket’ and pursue smaller clients, the tendency is to maintain focus on larger clients as it has been traditionally in the past.

Ultimately, the key point is that emerging trends show larger advisory firms are shifting away from targeting highly affluent clients, and are instead aiming for smaller clients in the “millionaire sweet spot” – those clients who are still wealthy, but whose needs might not be so complex as to require senior-advisor-level service. And because these clients are generally less labor-intensive and price-sensitive as more highly affluent clients, they are a key factor for the rapid growth seen in many of today’s large firms. Solo advisory firms, on the other hand, lack the resources to implement economies of scale that larger firms are able to establish, and thus the most successful smaller firms flourish by continuing to target larger clients.

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