Investors' faith in financial plans is growing

Over half of retail investors said they believe in the importance of a written financial plan, according to a report today from Cerulli Associates, with support from Osaic, Inc.

That figure, 53 percent, is up from 41 percent a decade ago.

“Financial advisory practices that incorporate comprehensive wealth management and planning services see longer-lasting client relationships, bolster upmarket growth, and manage wealthier clients,” the report read. “This increased demand in planning is driven by various factors, including greater market volatility, the continued decline of employer pensions as a funding mechanism for retirement, and a growing array of complex investment vehicles.”

Additionally, Cerulli and Osaic found that 55 percent of investors consider an advisor’s understanding of their financial goals, needs, and risk tolerance as well as their entire financial picture (49 percent) when choosing a financial advisor, as compared to the performance of their investments relative to the overall market (46 percent).

While several advisors said they mostly agree with the findings, some said that having a financial plan is just one aspect of the overall picture. Catherine Valega, founder of Green Bee Advisory, said she doesn’t believe in a "written plan," as it implies a one-and-done, she said.

“It’s useless as soon as you print it,” she said. “All of my clients get their own unique financial portal where their financial life lives and breathes. Every time we talk, we look at the plan and make updates as needed.”

Having a written financial plan is essential for achieving one's goals, but it only works “if the investor both understands and actively engages with it,” said Michael Resnick, senior wealth advisor at Alera Group, in an email.

“A plan stored away in a binder at the back of a closet serves no real purpose, yet this is often where many plans end up,” Resnick said.

He added that it’s ultimately the advisor's responsibility to keep the plan front and center during regular reviews, helping the investor understand why they are in a particular portfolio, how it will perform under different market conditions, and why the investment timeline is critical to managing risk.

Meanwhile, some advisors disagree.

“The plan definitely needs to be written,” said Patrick Kilbane, partner and wealth advisor at Ullmann Wealth Partners. “A written plan reduces any ambiguity and holds the advisory team and clients accountable.”

During market volatility, the written plan serves as the firm’s “true north,” Kilbane added, “to ensure we unemotionally implement our plan, regardless of any unforeseen and short-term circumstances.”

Ultimately, what clients are really looking for, said Matt Price, managing director and wealth manager at Steward Partners, is to have all these pieces of their financial life talk together, highlighting the firm’s Live Well Plan. The process involves gathering comprehensive data, including tax returns, estate plans, and investment statements, to develop a cohesive financial roadmap.

Beyond the initial plan creation, Price also points to the importance of consistently reminding clients that their investment returns are benchmarked against a customized index, rather than arbitrary market benchmarks.

Cerulli and Osaic also found that advisors who specialize in comprehensive wealth management have significantly larger average client sizes and AUM per practice than those providing financial planning on an issue or case basis.

For instance, firms that 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 percent versus 7 percent), and manage an average client portfolio of $1.8 million versus $562,000.

Advisors who choose to transition from an investment-management-oriented service model toward a financial planning and advice-oriented service model are bound to face several challenges.

However, to help ease the pressure, Richard Backora, vice president and head of RIA Client Services at CBS Brokerage, suggests advisors recognize their skill sets, humanize the conversation with their clients and overcome biases.

“Clients don't care whether you like commissionable products or not,” he says. “When there's a life-changing event that takes place, they're going to call you, and they expect you to have a plan and a funding mechanism for it. We need to remove some of the old biases, and we need to be open to collaboration," suggesting that both experienced and newer advisors need to actively educate themselves and learn from each other to bridge the experience gap.

Collaborating with industry expertise outside of the core business “is only going to enhance your client experience,” he added. “That's the bell of the ball right now. The client experience is how we are judged from our clients.”