Registered investment advisors operating as financial planners do more for their clients than those that just focus on asset management, but earn less.
According to recent research by Cerulli Associates, financial planners—those 4,041 firms providing complete financial plans that include income, tax and insurance components—deliver more services to clients than the 6,961 firms that just emphasize asset management. But because both models operate under similar fee structures, those who actually do planning (which is more costly and time consuming) "earn less for their efforts," the firm says.
Perhaps the model with the highest advisor productivity is that of complete wealth management, which provides more comprehensive services including complex estate planning, charitable giving and business planning largely for high net worth clients. The 2,861 firms that fall into this category, on average, have about $295.4 million in assets under management per practice.
Cerulli reports the difference between financial planners and wealth managers really comes down to being more selective about client segmentation and offering higher levels of service to richer clients.
“The segmentation strategy for an advisor practice lays the foundation for its service model and pricing structure, and these intertwined decisions have significant ramifications for a practice’s productivity and profit output,” says Kenton Shirk, associate director at Cerulli. “Segmentation is at the heart of an advisor’s growth, productivity, and ultimate profitability.”
Additionally, Cerulli found that the larger the practice, the greater the likelihood of serving high-net-worth clients. Half of practices with more than $500 million in assets focus on clients with more than $2 million in assets. Comparatively, only about 36 percent of practices with $250 million to $500 million in assets focus on these HNW clients, only 17 percent of practices in the $100 to $250 million asset range and only about 4 percent of practices with less than $100 million under management focus on HNW clients.