Advice is Value Added

A Cerulli study says the role of financial planning is becoming more important in client relationships.

In the current marketplace, creating alpha is increasingly about creating more value in the advice relationship. As investment management becomes more commoditized, broker/dealer (B/D) firms are turning to more comprehensive advice delivery to add meaningful value and differentiation to their client relationships, said Cerulli Associates, in a release.

To capture this, advisers should not try to tout esoteric investment philosophies—as Cerulli put it: “Explanations of firms’ investment philosophies sound like the mumbles of Charlie Brown’s teacher to most of the investing public.” Rather, advisers need to construct a plan using these tools to meet a client’s goals. “Providing investment advice independent of financial planning is like a doctor writing prescriptions without examining the patient,” said Scott Smith, senior analyst at Cerulli Associates, in the release.

More B/D firms are making financial planning advice less of an afterthought and more of a core component by encouraging their advisers to embrace the growing demand for advice delivery, according to Cerulli. But how can advisers balance the cost and time of this? Cerulli said firms must assist advisers with upfront costs. Also, well-integrated planning systems can help—but are quite pricey.

“Firms truly committed to increasing advice delivery will need to integrate planning into their core desktop systems to minimize adviser resistance,” Smith added.

In these volatile markets, increased emphasis on financial planning can help advisers strengthen client relationships. Positive investment performance is not exactly there to boost client confidence. Cerulli said an adviser more focused on financial planning will be able to focus clients on the question of, “Will I still be able to retire on time?” instead of, “How much have I lost this quarter?”

At the end of the day, Cerulli noted that clients remain the judge of whether an advice delivery model is valuable. By focusing on long-term, advice-centric relationships, the financial advice industry will create a win-win situation beneficial for client outcomes and adviser business.

These findings were in the Cerulli report Financial Planning: Trends in Advice Delivery.