"The path of least resistance leads to crooked rivers and crooked men"
-Henry David Thoreau
This quote is harsh, but it is a reminder that as humans, our behavior is often driven by the avoidance of difficulty yielding instead to what appears easy. As an industry, the financial services business is at a crossroads of sorts on this path of least resistance. Regulatory changes, robo technology and a shift in consumer preferences are just a few of the drivers that have led us to this juncture. In a column for Financial Planning Magazine, Bob Veres wrote about a couple questions he asked a “fee-only” group of advisors saying this: “At a recent NAPFA conference, I asked everyone in the audience to raise their hands if they were charging their clients based on assets under management. Virtually every hand went up…. Then I asked how many of them were considering a switch to retainers or other fixed compensation at some point in the next couple of years. Once again, virtually every hand went up” This dichotomy illustrates the hard decisions to make. Being paid solely on AUM for all services an advisor provides has worked for some time. But it is becoming increasingly apparent that continuing to do so places your practice at risk for overcharging when compared to the automated investment services (avoiding saying the word “Robo” too much). Additionally, the greatest value add human advisors provide their clients is through comprehensive financial planning and truth be told, many have stopped providing that service. Why? It’s hard! It’s hard to engage a client, convince them to pay a fee, collect all the data, coordinate with other professionals, help get the financial house in order and monitor the plan. Why go through all that work when you’re getting paid entirely by attracting more AUM. There are many firms that still do comprehensive planning, but of the hands Veres saw go up on his questions, I bet many have moved their practice almost entirely to investment management because…that’s what they’re getting paid to do. It’s the path of least resistance.
"Pain is inevitable, suffering is optional"