“It's not what you look at that matters, it's what you see.” — Henry David Thoreau
According to a recent survey by Certified Financial Planner Board of Standards, Inc., 91% of consumers expect that the advice they receive from a financial advisor will take into account their total financial situation. Yet, many advisors are still myopically focused only on managing their client’s assets. This renders them unable to serve the 70% of consumers who prefer an adviser who has the ability to look at their whole financial situation, as reporting in the same survey.
Advisors without the proper tools will be unable to prepare a comprehensive financial plan that incorporate not only a client’s investments but also their taxes, insurance, retirement, education planning and budgeting of everyday expenses.
Consumers have become used to comprehensive views of their financial lives through free personal finance manager software such as Mint.com, Check.com and Personal Capital. All of which offer a centralized, holistic view not only of a consumer's investments, but also their checking account, credit cards, even their PayPal balance.
Not only do they provide a simple display of the data, they also analyze it and provide consumers with recommendations. Of course, most of these recommendations generate commissions for the websites, but that’s what subsidizes the service and enables it to be delivered free of charge. And consumers don’t seem to mind. Mint has over 10 million registered users, tracks $80 billion in credit and debit transactions and almost $1 trillion in loans and assets.
In case you were reading too fast, that was trillion, with a ‘t’.
While these integrated services are gathering AUM and have become ubiquitous on the Internet, a household-level view of a client’s financial world is still elusive for many advisors. The majority of advisors are employed by broker-dealers and do not have much choice since the home office controls the firm’s technology solutions. This prevents the type of data aggregation, performance measurement calculations, and customizable data visualization that advisors could provide their clients to catch up to what is being offered online.
A reasonable first step for home offices would be to provide their advisors with access to a client’s held-away assets, from anywhere they may reside. The market for aggregation software is crowded and most vendors have built out impressive infrastructures made up of automated connections to over 10,000 financial institutions.
Smart advisors could leverage knowledge of outside assets in any number of ways. Large cash balances in low-yielding checking accounts can be migrated into money markets, municipal bond funds or Treasuries. Equity holdings can be replaced with index funds that mimic returns with lower risk. Some aggregators even provide a window into 401(k) accounts where advice can be provided on asset allocation or mutual fund selection.
All of these options increase the client’s perception of the value of their advisor, which will reduce turnover, increase referrals and improve the chances of consolidating assets currently held at competitors.
A holistic view of a client’s entire financial picture will soon become table stakes in the fee-based advisory market. What consumers now receive for free online will come to be expected from the advisors they are paying 150 basis points or more. Rich rewards await those advisors who not only look at their client’s accounts, but who can truly see and manage their wealth at the household-level.