The conventional view in financial planning is that if something is “free” it’s not worth anything, and that therefore if we want consumers to really “value” financial planning, we need to charge for it. Yet the caveat, as expressed by author Chris Anderson in his book “Free: The Future of a Radical Price”, is that bundling “free” solutions with another paid product or service is an entirely legitimate business model, and in fact a surprisingly robust one.
In fact, not only can a business be very profitable by giving away an initial product or service for ‘free’ and get paid for a complementary or supporting solution – the classic “freemium” model – but by leading with something that’s free, the business may actually grow and gain even greater adoption in the process. Arguably, this suggests that not only has offering financial planning for ‘free’ over the past several decades been a good business model, but it may have even helped to gain adoption and acceptance of the value of financial planning in the first place!
On the other hand, the reality is that the ongoing advancements of technology are beginning to undermine the products and asset management services that have classically been the financial engine of the financial planning business model. From declining commission rates on products – to the decline of commission-based products altogether – and new threats to the pricing of asset management from robo-advisors, the question arises of whether the free-planning-plus-paid-financial-products-and-services model may be on its way out.
In the near term, this phenomenon appears to be shifting the landscape, as financial services products and asset managers (e.g., Schwab, Fidelity, and especially Vanguard) begin to deliver their solutions directly to consumers – packaged together with ‘free’ financial planning. But perhaps in the future, the business model will flip around altogether, and instead of giving away free financial planning and getting paid via financial products or AUM, advisors will give away financial products and asset management, and get paid for the financial planning instead, turning the financial planning “freemium” model around 180 degrees?