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Wealth Management Industry Failing Clients on Financial Planning

The wealth management industry is largely failing to deliver financial plans for numerous reasons, according to the head of planning at Citizens Bank Wealth Management.

Most adults recognize they need a financial plan. But only about half of them ever get one and the industry is largely to blame, according to Jay Friday, the head of financial planning for Citizens Bank Wealth Management.

According to a recent survey by Citizens Bank Wealth Management and Mintel, about 75 percent of adults said they need a firm financial plan but only 55 percent end up with one. It’s a considerable gap, given the benefits of having a financial plan, including some that might be less obvious. In addition to a plan helping consumers set and meet their financial goals, the same study found financial planning has an impact on overall wellness, improving a sense of security and reducing stress and anxiety.

“I think, as an industry, we just have to figure that out why someone would really believe in planning but not go get [a financial plan]?” Friday told WealthManagement.com.

He shared a number of those reasons or “friction points” and said the wealth management industry just hasn't addressed the issues as well as it could.

From the start, wealth managers typically seek out clients who already have money—usually, a minimum amount of investable assets—before they will work with them. But many consumers want a financial plan of some kind well before they reach as much as $250,000 in assets or more. Friday said wealth managers need to engage clients earlier in their lives and create more urgency when it comes to planning—not wait for clients to come to them after a life event or their bank account reaches a specific balance.

Automated advice platforms emerged to service clients that wealth managers weren’t actively engaging. But Friday said robo advisors are still primarily asset allocation tools that can’t fulfill what people are looking for in terms of planning. Although, Betterment investors can pay to speak to a financial advisor and Wealthfront recently began offering its planning software free of charge. “I think there is a time and place for robo [advisors] but I just don’t think they go far enough,” Friday said.

Fee models also act as a barrier between advisors and consumers who want financial planning. Some advisory firms offer planning for a flat fee but that’s typically a comprehensive analysis that might be overkill for what some clients need and come with a bigger price tag to match. Friday said the industry hasn’t “cracked that code yet,” but that modular options would make planning more accessible. For example, an advisor could charge a recent college graduate a fraction of a traditional planning fee for helping them determine how much to save. 

Modular planning might also help advisors gradually build trust with clients intimidated by disclosing information about their personal finances. Fear of judgement keeps clients in need of a plan from an advisor and the industry needs to dispel that, Friday said. 

“I think people sometimes have a negative image of planning,” Friday said. “It does not have to be that rigorous undressing every time.”

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