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Report Suggests Wealth Managers Should Offer Clients Self-Directed Planning

Financial planning will continue to be an advisor-led process but Aite Group says firms are missing out on an opportunity to target other client segments.

A recent industry report suggests wealth managers should consider offering self-directed financial planning tools to clients, something few advisory firms make available even though planning is the value proposition they increasingly point to in defense of their fees.

Financial planning will continue to be an advisor-led process but adding self-directed technology to complement what firms already offer could create opportunities with more client segments, according to the Aite Group report, Financial Planning at the Core: Current and Future Developments.

As investment management becomes increasingly commoditized, financial planning is how advisory firms have aimed to differentiate themselves. But creating financial plans is a time-sucking task advisors might not feel is worth the effort for clients with fewer assets.

Matt Harris, the head of investment strategy for HighTower Advisors’ division of wealth management, said there will always be clients with complex planning needs that require intense interaction with their advisor and collaboration with other professionals such as accounts and attorneys. For other clients though, Harris could see the value in complementing the services a firm offers with self-directed financial planning.

Like investment management, Harris said financial planning for the mass affluent and even other client segments could become commoditized to some extent.

“Any process that can be automated, will be automated, and with that automation will come price competition,” said Will Trout, a senior analyst at Celent, focused on technology strategy and innovation in the securities, wealth management and banking industries.

Trout said investment management will ultimately “re-emerge as a focus of value, as advisors slice and dice models, multi-strategy funds” and other investments and deliver higher levels of “mass customization” to clients.

He added that some companies, like Cinch, a technology firm that aggregates financial information from users’ accounts and makes recommendations, are already automating financial planning—and they are separate from a wealth manager.

Trout’s notion that wealth management and financial planning will eventually be automated was shared by Eran Livneh, vice president of marketing at Personetics, a technology company that helps financial institutions implement artificial intelligence solutions.

“Wealth managers really don’t have a choice; if they don’t offer self-directed tools, someone else will,” Livneh said. “Some customers will use them a lot, some will use them sometimes, and some will not use them at all—but everyone wants to have a choice and the option.”

Artificial Inteligence is already being used to learn about customer behavior and help them make decisions, whether about their investment preferences or something more simple like how much to invest or save based on cash flow, Livneh said.

But Livneh doesn’t foresee self-directed planning tools—even those paired with artificial intelligence making recommendations—replacing advisors. He, and others, expect advisors will add value on top of automated financial planning. 

Collecting all the necessary information and creating a holistic plan that leaves no stone unturned could be too onerous for a client to do on their own, said Kenton Shirk, the director of Wealth Management Research & Consulting at Cerulli Associates. He also noted that automated solutions can’t walk clients through trade-offs and decisions that the consultation and experience the advisor can offer. A self-directed plan might be a good one, but it’s also useless if the client doesn’t stick to it.

“While creating a plan can be commoditized, helping investors stick to the plan cannot be,” said Sirisha Gorjala, head of Financial Planning, Advisor Software at Morningstar. “Investors need help in nudging their spending and saving behavior, and there is a huge opportunity for wealth managers to highlight behavior science in their value proposition.”

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