Introduction
The financial planning landscape is undergoing a seismic shift, with traditional intermediating financial planners facing increasing pressure on multiple fronts. A recent study by NextWealth reveals a decline in advice fees for the first time in five years, from 2% to 1.75%. This comes at a time when the cost of doing business remains high, squeezing margins and affecting exit valuations. So, what does the future hold for financial planning? Could non-intermediating models be the way forward?
The Pressure on Intermediating Financial Planners
Regulatory Changes
The introduction of consumer duty regulations has forced firms to reassess their fee structures. Fair value is now at the forefront of advice, compelling firms to rethink not just their fees but also their business models.
Rising Costs
NextWealth director Heather Hopkins points out that costs for advice firms have not decreased. In fact, technology and salary costs have been on the rise due to inflation and market conditions. This creates a challenging environment for traditional advisers, who are grappling with reduced fees and increased costs.
Exit Strategies
The report also indicates a significant uptick in advisers looking to sell their firms—16% plan to do so in the next 18 months, a threefold increase from 2021. About 8% are considering exiting the market entirely, often due to poor market performance and the looming possibility of a recession.
The Rise of Non-Intermediating Models
Subscription-Based Models
Some firms, like Finova Money, are experimenting with subscription-based fee models. While this approach has its sceptics, it offers a transparent and straightforward way for clients to understand what they’re paying for.
Technology Adoption
The report shows that 46% of advisers are interested in or planning to add new technologies to enhance their services. This opens the door for non-intermediating models that leverage technology to offer more efficient and cost-effective services.
Holistic Financial Planning
Non-intermediating models often take a holistic approach to financial planning, focusing on the client’s overall well-being rather than just their financial portfolio. This aligns well with the consumer duty to provide fair value and could be more appealing to clients in the long run.
Conclusion
The financial planning industry is at a crossroads. Traditional intermediating financial planners are feeling the squeeze from regulatory changes and rising costs, leading many to reconsider their future in the industry. On the other hand, non-intermediating models are showing promise, particularly as technology continues to evolve and consumer expectations shift.
If current trends continue, we may see non-intermediating models gaining more traction, offering a viable alternative that aligns with modern consumer demands for transparency, value, and holistic well-being.
Adviser Comments
One suggests that a 1% fee for portfolio management is hard to justify, especially when cheaper options are available. Another argues that the industry needs to better document the services provided to justify fees. Both comments point to the need for a more transparent and value-driven approach, something that non-intermediating models are well-positioned to offer.
The future is uncertain, but one thing is clear: change is inevitable, and those who adapt will be best positioned to thrive.
By Steve Conley, Founder, Academy of Life Planning
Academy of Life Planning 