The Choice: ‘A Certain Nobility’ or The Commoditizing of Personal Financial Planning’?

The Choice: ‘A Certain Nobility’ or

The Commoditizing of Personal Financial Planning’?

There are no solutions, only tradeoffs

Professor Thomas Sowell

            Is Personal Financial Planning becoming commoditized by the likes of Vanguard (with it’s Vanguard Personal Advisory Service .3% vs 1% + a planning fee) and or Robo-Advisors like Wealthfront?

            Actually, for all the hand wringing and hoopla, the answer is no.

            What is being commoditized is the predominant organizing structure and paradigm of personal planning: ‘More .’

            ‘More’ is going for ‘less’ even at Verizon™.

            More is being sold for Less.

            More is becoming worth-Less (pun intended)

Disruptive distribution is taking its ‘toll’ on the fool’s gold promise of ‘More’ (Tautologically More is never enough). More personal financial planning is experiencing reductions in compensation akin to the effect that ETFs and Index Funds had had on mutual funds market share. And regardless of compensation method for More personal financial planning, compensation reduction due to commoditization is a reality ‘lessening’ the grip of the illusory value proposition of More personal financial planning. Further’more’, planners, head in the sand, whose personal financial planning compensation method is inextricably More woven do so at their own risk and practice peril:

            In particular, More is imbedded in financial planner compensation with the tradeoff supposed value of the method as illustrated below

·         Percentage of assets under management (AUM) compensation -if the client makes More, then the planner makes More (win, win!) But if the market goes down and the client assets are reduced– the planner wins while the client ‘loses’ as the planner is still paid (though less) per assets asset under management percentage. The Assets under Management “More” is you win, I win, you lose, I still win but less so.

·         Value added ‘reduction in taxes’: the client will have More by paying less (even if illiquid non income producing investments are employed for write offs  and or  aggressive tax strategies are used)

·         Sales commission/transaction planning: making More and or paying  less aka fill or kill whereby the salesperson in planner clothing gets his regardless of ‘More ’ or ‘less’

·         Fee and commission or fee and commission offset – see AUM above and fill or kill

Of course, in denial, the planning community will answer, “if we don’t perform (make More or pay less taxes so the client has More – we’ll be fired.” The reality is they’ll be fired anyway – as More is nebulous, ‘never enough’ and continually in akin to the hamster on the spinning wheel while being in comparison to others/indexes (S&P, Dow Jones etc) setting up inevitable relative disappointment in the More planner.

Recently, some financial planning practice experts have counseled solo planners facing shrinking compensation to ‘go big or go away’ (consolidation cost savings). ‘Go big or go way’ is denial of the top line revenue shrinkage – and a failure to see outside the  ‘financial planning practice litter box of More. Another approach bandied about is ‘BFF(F) (1)Yaktdy Yak (‘don’t talk back’) (2) nebulous personal financial life planning – to avoid reduction of fees.. While personal financial life planning is ideal, the faux Trojan Horse Yakty Yak personal financial planning trades on the advisor client relationship to maintain compensation level: mining the mountain rather than assisting the client to climb his mountains linking his personal assets to achieve life goals and values.

Any jackass can kick down a barn but it takes a carpenter to build one

Former Speaker of the House Sam Rayburn

So, how can the personal financial planner offer value and maintain his or her compensation level in the face of the commoditizing and depreciation of the ‘More’ “value” proposition?

Half truth; whole lie

Talmudic Saying

In the early days of fee only planning, commission and fee and commission planners would ask me, ‘how do I explain to present commission and or fee and commission based clients that I am going ‘fee only’ (without losing them?’

Flippantly, my first answer was, ‘tell them, I’m sorry I was shtupping you all these years, but I’m not going to shtup you any more, I’m going fee only.’ After the reaction of a Jerry Lewis spit take or a disbelieving head double take (‘what did you say?) by the ‘planner,’ I would offer the following suggestion: indicate to the client that in one year your practice shall be totally converted to fee only. However, offer the client a choice – he may stay with the current transaction/commission compensation agreement till next year  but thereafter immediately by converted to a fee only agreement or convert immediately to fee only compensation.. Having the sugar of choice makes the medicine go down a little easier – though the planner still should expect some churning and loss of clientele in the transition.

Please note the ‘wealth management division’ of a certain major major wirehouse  is now ‘touting goals based personal financial planning’ with full transparency (3) – not that the realization that ‘More’ personal financial planning does not offer a value proposition conducive to retention. My question to this Wealth Management head (still charging directly or indirectly the ‘More‘ oriented assets under management) – ‘what are you telling your clientele relative to your new approach, ‘sorry we’ve been shtupping you all these years, now we’re gonna make it right but still get compensated on the  More oriented AUM but now we will be transparent?’

(I’ve thought of sending the Wealth Management Director an appropo gift of a brief case filled with Vaseline jars to share with his clients.)

            Making the compensation transition while giving a client choice is the easy part, the hard part is offering a better value proposition than ‘More’ – value that goes to the heart of what really is the core essence ideal ‘a certain nobility’ of the role of personal financial life planning in the client’s life’

‘A Certain Nobility’: Enabling Connection

Every art and every inquiry, and similarly every action and pursuit, is thought to aim at some good; and for this reason the good has rightly been declared to be that at which all things aim

Aristotle, Nicomachean Ethics

Other than coordination, the fundamental promise of that certain nobility of personal financial planning is enabling connection even reconnection to significance. In particular, personal financial planning’s potential is aligning the client’s personal resources (capital – financial and otherwise) to the support the realization of life goals, values and their desired payoffs, thus, transcending to significance. And yes, that significance – the good – is meaning – the meaning IN the client’s life, making that difference fulfilling ‘why I am here.’ In the process, if the personal financial life planner is doing his job, there is a healing of personal financial anxiety, puttin’ money in its place to elevate to that significance – that certain nobility – and in this process minimize or remove some of the stumbling blocks in client’s paths (like “More” for More’s sake) which often is blinding them from realizing their life goals, values and significance.

Given the aforementioned’, and probably available for 99cents used on Amazon, within the first and second editions of my book ENOUGH(sm), is the ‘personal prospectus session.’ This session, which occurs after securing documents and initial information, but before running any numbers, quantifies values, illustrates decisions, turning points empirically on a life line allowing initial inferences as to how personal financial resources decisions and tendencies occurred within the context of past life choices, achievements and yes, even regrets. The personal prospectus concludes with the creation of one’s mission and vision– what it is and ‘more importantly’ what it is not. This personal ‘prospectus’ is not nebulous Yakety Yak personal financial life planning – but rather it is connection, alignment – and concrete.

And if do say so myself, this ‘personal prospectus’  holds up well now 40+ years since first implemented into my prior personal financial life planning practice.

Encore: Ta Daa!!!!

The above said, should I decide to update a 3^rd edition of ENOUGH(sm), amongst other changes, I would add a chapter particularly targeted to those 50 and above: The Soul Resume – After Life Insurance©. (This addition to the ENOUGH(sm) process would ideally, though not necessarily, to be implemented prior to the first annual review with the client over 50.)

It is my hope that The Soul Resume: After Life Insurance© will, in part, answer the questions of Encore, and ‘What Next’ (itself symptomatic of the continued search for meaning IN one’s life) as an affirmative exercise to disprove ‘there are no second acts in (this) life’ incorrect setting the stage for the client’s and yes the planner’s encore.

The Soul Resume: After Life Insurance© will be forthcoming in the next few weeks. Contact this blog if interested with acknowledgment that receipt of the The Soul Resume: After Life Insurance© is under the provision that it will NOT be redistributed. Name, address, phone number and email address will be required.

By Jim Schwartz (Yaakov ben Elisha)

‘A Man of Dog’ (In Training)

CHEWish on This(c)  More OR Less

(1).- BFF(F) – Best friend & fees forever a function of fees

(2).- Yakety Yak (by The Coasters) employing the tactic of ‘you have to understand before you are  understood’ (so that fee percentage will remain the same or higher)

(3).- The irony of this wirehouse’s Wealth Management Division advocating transparency is that for years the securities industry as well – yes, the CPA business and bankers fought full and timely disclosure of all compensation legislation in Colorado when functionally acting as and or holding themselves out as personal financial planners. Tooth and nails they fought an estimate of all compensation upfront with actual disclosure quarterly – and now, this wirehouse’s division is born again advocating transparency?