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Changes in the Financial Services Industry Thumbnail

Changes in the Financial Services Industry

Did you hear about the two guys who were busted for stealing a calendar?



They each got six months!


Yep, I went straight dad joke here.  I figured with everything going on that even a terrible joke wouldn’t look too bad right now.  Just as a disclaimer, I have a bunch of these.  I usually text them to my friends once a week.  All they do is complain.  However, if I haven’t sent them one by the weekend I usually get a text asking “Where’s my terrible joke?”  


Anyways, after sharing the article on CARES Act and rebates yesterday I thought I would step back a bit and share some thoughts of changes happening in my industry.  Please indulge this article that is a little-more self-focused.


The first big change is it seems many advisors are moving to a flat fee model with clients paying a monthly retainer as a result of the recent market pullback.  I really shouldn’t be too surprised, however, I am a bit suspect as to why the big shift now.  As a refresher, I launched my firm years ago because I felt this was the best way to charge for services.  Why?   Well, because my experience has been that just because a client has more assets often does not mean they have a more complex financial life that would justify charging higher fees.  However, with so many advisors charging a fee based on assets under management (AUM), high assets mean more fees going to the advisor. Also, I work with mostly GenXers. These clients are often ignored by the typical AUM advisor because their assets are tied up in workplace retirement plans, so there is nothing to charge AUM fees on.


With the market pullback many AUM firms saw a massive hit in their revenues.  If you are an advisor charging 1% on AUM and your asset base dropped from $100 million to $75 million, well, they just took a 25% cut in pay, plus they are probably having to work harder than they have since 2008 with all the client phone calls. I won’t even mention how many of these old school guys are probably trying to shift to a virtual model like mine since they can’t meet face-to-face.


I’ve heard from several “experts” in my industry they’ve seen a huge shift to a flat fee model like mine.  Why?   Well, because I’m a cynical GenXer, I have a feeling it is because they want to stabilize their revenue. I also have a sneaky suspicion their flat fee models will somehow get them right back to the fees they were earning on the original $100 million in AUM.


Also, don’t get me started on how many “flat fee” advisors have multiple flat fee levels (depending on client asset size), continue to charge AUM fees, and also receive commissions on insurance products they sell.  As my wife says – “That isn’t a flat fee!”  


The other big shift is related to the insurance-based advisors who can no longer meet with prospects to sell them some high-cost annuity or whole life insurance policy.   You know these guys.  They are the ones that finish every meeting with “I get paid in two ways. The fees you pay me and the referral of friends and loved ones.”   UGHHHH!!!  What will happen to them?  Well, I think some of them will finally retire.  However, the insurance companies they represent will figure out how to shift to a model where the advisors don’t have to meet face-to-face to sell them their wares.  So, be ready for more virtual insurance sales coming your way.


Ultimately, more advisors will be shifting to a model closer to what I established years ago, at least they say they will.  Remember, it is important for you to do your due diligence as most advisors do NOT charge a single flat fee like I’ve been doing from the start.  Plus, I’ve been fully virtual the whole time.  There is a reason why I named my firm Forward Thinking Wealth Management!