While the AUM model just “doesn’t work” for much of the middle class and younger folks, it’s still a remarkably good business model for those who really do have the assets and need for an ongoing financial planning relationship (e.g., retiring baby boomers). To some extent, broker-dealers have managed to shift their models to support fee-based investment advisory business to accommodate this shift, but many broker-dealers still struggle with their legacy infrastructure trying to facilitate what ultimately appears to be a leaner and more focused model. Pivoting Quickly To A “Work From Home” Model: What Advisory Firms Need To Know, 12 Tips To Survive Your First 12 Months As An Independent Financial Advisor, The New 1% Advisory Fee: 1% Of Income, Instead Of 1% Of Assets, Analyzing The CARES Act: From Rebate Checks To Small Business Relief For The Coronavirus Pandemic. The video for this month’s live Office Hours, Best Practices in Hiring: Making Sure Your Next Employee is the Right One Who Stays, has been posted in the Members Section! Its case is separate from that of several states. Instead, the long-standing “dirty secret” of financial planning is that the bulk of it is paid “indirectly” through the products or services that are used to implement the plan. In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. Free unlimited access to ThinkAdvisor.com which provides advisors, like you, with comprehensive coverage of the products, services and trends necessary to guide your clients in making critical wealth, health and life decisions. Simply put, financial planning does provide advice regarding a wide range of insurance and investment products, and many/most people do need and/or want help and assistance in implementing them; that’s not going to end anytime soon (and thus neither will the business models that support them)! What Returns Are Safe Withdrawal Rates REALLY Based Upon? “We’ve been on a deliberate path of reinvesting for sustained growth … since day one,” Kitces explained. XY Planning is acting because its self-interest aligns with what is truly good for all RIAs and investors, according to Bill Winterberg, of FPPad, a technology consulting firm for advisors. The blogger also wrote about the matter extensively online this week, explaining: “Ultimately, though, the purpose of the XYPN lawsuit against the SEC is not to undermine the ability of broker-dealers to engage as such; instead, the issue is simply that Congress has repeatedly prescribed that the delivery of financial advice must be delivered under a fiduciary standard of care, either by lifting the standards for brokers when providing such advice, or by requiring such advice to be delivered as a registered investment adviser in the first place.”, 5 Worst States for COVID-19 Hospitalization Rates, Why Raymond James' Purchase of $35B Retirement Plan Firm Is a 'Strategic Fit', Bitwise Launches First Cryptocurrency Index Fund, Harry Dent: Market Crash Coming in 2-3 Years; Economy ‘Already Dead’. It was founded about five years ago. Advance your career and take your firm's production to the next level with FREE practice-management tips. (Disclosure: Michael Kitces is a co-founder and partner in XY Planning Network. My passion is helping divorced women take control of their financial situation and create a realistic plan to achieve their goals including rebuilding their wealth, sending kids to college, and planning for retirement. Very Well, Says Invesco, Wells Fargo Raises Monthly Comp Hurdle for 2021, Jeffrey Levine: 5 Tax Tips for Wealthy Clients to Consider Before It's Too Late, Vanguard Slashes Investment Level for Institutional Target Date Funds, Sign Up for the Career Advantage Newsletter, Sign Up for the Inside Wealth Management Newsletter. ... XY Planning Network has launched its own compliance archiving solution. That doesn’t necessarily mean that broker-dealers and custodians, or the associated product-based or AUM-based business models, are going to go away anytime soon. About Dwight Dettloff, CFP®, CPA. The firm's study of several hundred portfolios found that many advisors shifted allocations to investments that outperformed. Although the distinctions between a monthly retainer versus an annual retainer or an hourly fee are nuanced, they are nonetheless significant and have the potential to help financial planners finally get paid for what they actually do, especially for those consumers who don’t have the AUM or don’t need those financial services products through which financial planning has traditionally been indirectly paid! ), similar to how Garrett Planning Network facilitates the same thing for those who wish to do hourly planning. Advance your career with an FPA membership. “We fielded these questions,” Kitces said, “and as one of, Meanwhile, XYPN is suing the SEC over its issuance of, Asked why the firm chose to make this legal move, Kitces said: “At, the end of the day, we think Reg BI is just fundamentally not consistent with the Investment Company Act of 1940 and Dodd-Frank [legislation].”, “lets brokers continue to deliver financial planning without being subject to the advice standard,” he explained. “We see that as fundamentally anticompetitive and in violation of the Investment [Company] Act and Dodd-Frank and are challenging the SEC on that basis.”. All Other Questions, Hourly fees are often transactional – when you have a problem, you purchase the professional hours necessary to get help solving the problem – while an ongoing monthly fee is relationship-oriented; advisors are compensated not for coming up with problems to solve, or impressing upon their clients that their problems are ‘worth’ paying for a one-off solution, but instead are compensated for providing good service and ongoing advice that retains clients (and retains their ongoing monthly fee relationship). So what’s the solution? And as the industry is shifting towards providing more planning services to clients, don’t get left behind! XY Planning Network founders Alan Moore (left) and Michael Kitces at the 2019 XYPN Live conference. For most of its history, “getting paid” for financial planning has really been about giving away financial planning at little or no cost and making it up from the income generated by implementing the recommendations of the financial plan, first through the sale of insurance and investment products, and more recently by providing ongoing investment management services. Michael Kitces, co-founder of XY Planning Network, says the group is mulling its options after a federal court struck down the organization’s lawsuit against the SEC rule. To help meet this need, this past week witnessed the launch of XY Planning Network – a new network for Gen X and Gen Y advisors who wish to work with their Gen X & Y peers offering this kind of monthly retainer model. Not all the Democrats' tax plans are negative for wealthy clients, Levine says, but several available planning opportunities are likely to go away. The group recently announced new services for members, such as a three-week intensive sales and marketing program as well as advanced coaching; compliance coaching and reviews of compliance programs; more financial planning and process consulting; and white-label tax services. However, the problem in turn with these models is that their pricing is highly salient – the “write a check to pay all at once” nature of it can result in sticker shock for prospective clients, and makes it difficult for clients to properly compare and keep the cost in context. Just as with the AUM model, this allows advisors to grow their business and income over time by growing a base of clients who pay an ongoing fee for the relationship service (perhaps even supplemented by AUM in the future as those clients eventually do begin to grow their assets and net worth!). 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