Study: Financial Planning Brings in More Revenue

Holistic financial planning has been hailed by many industry studies as the way the advisory industry is moving—and new research suggests it could also be more lucrative.

Advisers who approach client relationships with a long-term planning focus reported higher revenues, according to research of financial professionals from the Partnership for Retirement Education and Planning (PREP). The survey conducted among members of National Association of Insurance and Financial Advisors (NAIFA); the Society of Financial Services Professionals (FSP); and Million Dollar Round Table (MDRT), an international, non-profit association of more than 39,000 financial service professionals.

PREP said surveyed advisers who identified themselves as “planning experts” reported their typical client had twice the total assets as advisers who were more focused on individual product sales. The “planning experts” were not significantly different than “non-planners” in years of experience, size of firm, job function or type of products they offer. But, “planning experts” who approach client relationships with a longer-term planning focus had three times the assets under management and reported 40% higher annual revenue than the “non-planners,” according to a press release of the results.

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Planning Boom?

The financial downturn has particularly led Baby Boomers to seek out more financial planning, the research found.

More than three-fourths (77%) of the surveyed financial professionals indicated the current economic downturn has had a significantly greater impact on their Boomer generation clients than any other generation, according to the results. Close to the same number (73%) said the downturn made their Boomer clients more focused on financial planning (also more than any other generation).

Boomers have neglected planning because they don’t fully understand the value (a reason cited by 78% of respondents), and they are embarrassed that they haven’t accumulated more assets (mentioned by 70%), according to the results.

Advisers are usually the ones who instigate the planning: Nearly half (49%) of surveyed financial advisers said at least 75% of the impetus for a successful financial plan comes from them rather than the client.

“If there is a silver lining in this dark cloud, perhaps this is a wake-up call for Boomers to get busy managing their financial well-being,” said Philip Harriman, past president of the MDRT).

PREP is a coalition of 11 non-profit organizations representing more than 200,000 financial advisers “working to provide retirement education to Boomers and younger generations.”

Among the 600 surveyed advisers, approximately one-third of survey respondents operated under a combination of fees and commission, while nearly two-thirds were commission only. Only 4% of respondents ran a fee-only business model.

IMHO: “Passing″ on the Ammunition

A couple of months ago, I started getting e-mails from readers curious about the announcements of plans reducing and/or suspending their matching contributions.
As the weeks passed—and the number of reports grew—so did the inquiries. Those first inquiries were clearly seeking assurances that the announcements did not constitute a trend, that this was still just something a (very) few employers were embracing. Indeed, that was my sense of things, borne out not only by one of our weekly surveys, but also in a couple of industry reports as well—and I was happy to provide those assurances (and links to those surveys) to any and all who asked.
However, in recent weeks, those inquiries have taken on a different tone; this new wave of inquiries seems to be seeking validation, if not vindication. Now, not in every case—and not enough to persuade me that we were on the verge of a match-suspension tsunami—but enough to suggest that such a thing could be possible.
Resist “Tense”?
Throughout this process, I have resisted aggregating a list of employers that have cut their match—mainly because I worried that it would only serve to accelerate what I view as an ominous trend. Also in the back of my mind was a concern that such an accounting might be fodder for “enemies” of the 401(k), who would point to the actions as proof that that system was unreliable as well as risky.
Those concerns notwithstanding, it is a project that we have discussed undertaking—and, indeed, there have been a number of requests to provide a list of the companies that have chosen to cut or suspend their match. Sure enough, many of those more recent requests are apparently motivated by a desire to make the case for cutting back on the match to plan committee members, or as support for a communication about that move to participants.
Now, several of our stories on the subject detail a listing of similarly situated employers that have made that decision (see “Apparel Retailer Freezes Pensions to Cut Costs” , J. Crew Cost Cutting Clips 401(k) Match)—and you can make your own list at any time by going to our Web site(s), and searching for “match.’ Still, my head kept seeing a need for cataloguing those individual decisions, even as my heart told me that no good would come of it.
Unable to resolve my internal “debate,” I settled on a solution that I thought would be simple, fair, and effective: ask our readers. I did so in our weekly NewsDash survey last week, in fact—only to discover that my internal dilemma was nearly perfectly embodied in that readership; the vote for and against compiling the list in last week’s NewsDash poll split right down the middle (see “SURVEY SAYS—Should We List the Match Cuts?“). I kid you not.
As I poured over the responses, however, at least half of those who supported the compilation conditioned that support on the ability to keep that information “in context.” Some went so far as to suggest (or at least imply) that that would require listing the thousands of plans that hadn’t cut their match, though most said that desire could be satisfied by simply noting how many 401(k) plans there were in existence relative to the listing. Others noted the difference in impact when an employer was continuing to support/maintain a defined benefit plan despite suspending the match, or how safe harbor 401(k)s couldn’t suspend their contributions as easily as those with standard 401(k)s. However, even if we were able to do all that, we still wouldn’t have taken into account the situations where employers were making a decision to keep jobs with those matching dollars. Let’s face it—if you don’t have a job, you’re missing more than a 401(k) match.
And then, the day after the survey results appeared, I got a long and, IMHO, thoughtful response from a plan sponsor. He concluded by saying: “I would add my vote to the list who say ‘no’ to compiling and publishing a list. It will only get picked up and appear elsewhere in print. The Wall Street Journal or CFO Magazine will cite the list and suggest that ‘everyone is doing it. In fact, if you haven’t already suspended your 401k match, you’re out of sync with what the cutting-edge companies are doing.’ Don’t give them this ammunition.”
Now, that was only one voice—and one that wasn’t even reflected in the survey results. It was, however, a voice that spoke to my head AND my heart—and provided, for me anyway, a shining moment of clarity.
We will, of course, continue to report on the news and trends regarding employer matches, while presenting it in a thoughtful way that provides context for those decisions. I’ll apologize in advance to those of you looking for the convenience of the single listing (as I noted above, you can still make your own)—and trust that those of you who perhaps don’t see this as a big deal will at least appreciate the deliberations.
As for those of you who have made a decision, those who are still struggling with a decision, and those of you trying to help those who are struggling with a decision, I hope this discussion—and the comments of those who contributed to it—helps you with yours.

Editor’s Note: Unfortunately, the “news” about a match suspension will continue to be just that—and if this plays out the way it did the last time (2003), the restorations will be much less obvious, even invisible. But I’ll make this commitment now: We will happily and proudly report every single match restoration when they come back.

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