What if a visit to the financial adviser was more like an impromptu coffee grab than a dental checkup?
Instead of a boring annual visit, imagine a quick call from you adviser in which he makes a couple simple suggestions to keep your portfolio on track.
That’s the future, according to Michael Kitces, research director for Pinnacle Advisory Group in Columbia, Md. Speaking to financial advisers attending last month’s Morningstar Investment Conference in Chicago, Kitces tried to reassure them that investors, rather than turning their money over to automated investment platforms, will continue to pay for advice if it’s relevant and timely.
“Most financial planning today is reactive,” he said.
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A spending splurge, a health crisis or a job loss will often cause clients to put off their regularly scheduled appointments with advisers, compounding the problem.
“So then they finally come in and you find that, whoa, they went off the rails a year ago, but we didn’t know because they didn’t come in,” he said.
In a future aided by software tracking customer portfolios and everyday spending, advisers will already know their clients’ problems and will use more frequent chats to figure out fixes, he said.
In a separate discussion at the same conference, Ritholtz Wealth Management CEO Josh Brown went even further from the idea that robots will replace advisers, saying innovation has actually been better for advisers than for savers.
“People trust the market less than ever, which is bullish for advisers,” he said, noting an “avalanche” of index-based mutual funds, exchange-traded funds and other products have seen huge growth over the last decade.
Consumers’ minds are blown by all the choices, and they’re scared about the future, he said.
“(Investors are thinking,) ‘I earn less on bonds than I earned on my checking account a decade ago and stocks are overvalued,’” Brown said.
More and cheaper ways to access the market aren’t translating into greater wealth, he said, so perhaps what customers will crave will be advisers who can be less of a record keeper and more of a gate keeper.
“Maybe I’m here not to be a client’s friend but a bouncer who folds my arms and says, ‘No, you’re not going to own an ETF that trades at three times the price of palladium.”
The lesson in all this for investors? Think hard before you engage a financial adviser about precisely what you want out of the relationship. Are you truly disciplined enough to avoid the palladium ETF? Do you splurge and then ignore the hole it created in the nest egg?
Some financial advisers attending the Morningstar conference said they were intrigued with how deeply into clients’ personal lives and spending habits the industry was beginning to tread. I spoke with one who said he’s tried to bring up the spending topic with clients only to be rebuffed.
Eventually, some investors are going to figure out they really can use software to replace a human adviser, and some are going to realize they just want a professional to keep up with the changing world of tax, investing and retirement income strategies, or to keep them from palladium.
Hopefully, in either case, they'll get better at articulating exactly what services they want to buy, and pay accordingly.