With new regulations on the way that will impact how financial advisers interact with their clients, financial planning is poised to become a more scrutinized solution.
A new report from Aite Group took a look at what some of the industry's top players are doing to stay up to speed including those focused on providing deep financial planning capabilities, those offering financial planning solutions that integrate other wealth management capabilities, and those boasting traditional strength in investment management technology alongside financial planning capabilities obtained through acquisition or internal development.
"Financial planning will become a more important part of financial advisers' value proposition as regulators in key financial markets draft legislation that requires financial advisers to act as fiduciaries with all clients, and wealth management firms seek to differentiate financial advisers' offerings from those of online brokerages," said Sophie Schmitt, senior analyst with Aite and author of "Evaluating Wealth Management Platforms: Financial Planning at the Core."
Credit unions and other financial institutions might keep in mind that the new look of financial planning will require greater technology adoption by financial advisers, which could lead to new purchases or replacements, the report noted. Selection of the right financial planning tool requires that financial institutions spend time understanding how their financial advisers leverage financial planning to grow business, Schmitt pointed out.
Aite previously found that the practice of financial planning has been suffering from an identity crisis lately, and industry observers have varied opinions about what financial planning should include. Some of the key reasons for the confusion surround whether financial planning has to focus on multiple goals and solution types and are advisers who are registered as investment advisers the only ones able to deliver true financial planning. In a separate report, "The Practice of Financial Planning: An Advisor Segmentation," Aite said while the answers differ by firm and, in many cases, for each adviser, most agree that planning is an ongoing process that advisers and clients embark on together to define and accomplish clients' short- and long-term financial goals.
What is clear is that financial planning can be an effective tool for advisers to increase their business. In fact, 76% of planning-driven advisers recognize it as an effective client acquisition tool, according to Schmitt, who also authored the second report on adviser segmentation.
"Planning-challenged advisers may find it challenging to move from a transaction-focused business model to an advisory one," said Schmitt. "They have amassed large books consisting of clients who are more likely to have engaged in one-off transactions with their adviser than in ongoing financial planning discussions. Firms must help these advisers select a more successful model and should support them with intuitive planning tools and ongoing skill development."
Advisers who lead the sales conservation with planning and make every client meeting about their financial plan would benefit most from a solution with strong and broad financial planning functionality, Schmitt said. Those who focus on their investment management offerings with clients and view financial planning as the activity that supports product recommendations are likely to favor investment management integration capabilities over financial planning functionality.