The percentage of retail investors who say that having a written financial plan is important has significantly increased over the past 10 years, to 53% from 41% in 2014.
That’s according to new research from Cerulli Associates and Osaic, which also found that advisory practices that offer comprehensive wealth management and planning services have longer-lasting client relationships, improve upmarket growth and attract wealthier clients.
Factors driving the increased demand for planning services include greater market volatility, the decline of employer pensions and an increasing variety of complex investment vehicles, according to the report, Financial Planning: Fueling Client and Business Growth.
“Financial planning and advice services are now a vital consideration for investors when choosing an advisor with whom to work, nearly surpassing investment performance as a factor,” Andrew Blake, associate director of Wealth Management at Cerulli, said in a press release.
The research found that 55% of investors consider an advisor’s understanding of their financial goals, needs and risk tolerance, as well as their entire financial picture (49%), when choosing a financial advisor. In comparison, the percentage of investors consider the performance of their investments relative to the overall market is 46%.
Advisors who specialize in comprehensive wealth management on average have more clients and assets under management than those who offer financial planning on an issue or case basis. According to the study private wealth manager advisors (those who offer comprehensive wealth management):
Manage $822 million, on average, versus $210 million for case-based planners.
Service a greater proportion of high-net-worth clients (37% versus 7%).
Manage an average client portfolio of $1.8 million versus $562,000.
“With client demand for financial planning increasing and the majority of retail investors considering a financial advisor’s planning-related services as an extremely important factor when selecting an advisor, the service offering provides an opportunity for advisors to differentiate their practice beyond investment performance,” Blake said.
“Just less than one-third (31%) of financial advisor practices provide a wide range of core financial advice services as an integral part of their value proposition, creating ample opportunity for advisors to gain a competitive advantage,” he added.
The report’s authors concede that transitioning from an investment-management-oriented service model toward a financial planning and advice-oriented service model will be challenging for many practices. But, they say, Cerulli’s research shows that it may be worth the effort as investor demand for this service grows.
Advisors should evaluate how their wealth management service offering is satisfying the growing demand and consider gradually adding more services to move further along the service emphasis spectrum, according to the Cerulli press release.
“Advisors who don’t currently provide financial planning and advice services don’t need to make the transition all at once,” Blake said. “Small steps can be taken toward incorporating financial advice and planning into a practice’s service model and familiarizing clients with the value proposition of services.”
