Financial Planning: Trends in Advice Delivery

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  • 1. C The Cerulli ReportTM ReleaseS A C e r u l l i A s s o c i a t e s Financial Planning: Trends in Advice Delivery July 2008 This report contains the This report examines the ways in which firms and financial advisors deliver varying degrees of financial advice to indi- following chapters: vidual investors with less than $10 million in net worth. The report focuses on three key areas: • Demanding Advice: Key • Market forces affecting financial advice Drivers in the Expansion of Financial Advice • Support systems created for advice delivery • What Do You Want in • Advisor’s application of advice delivery within their practices Financial Advice and Planning Two surveys provide data for this report—one delivered to broker/dealer home offices and one delivered to advisors. • Determining the Value of Advice for Providers This report helps distributors: This report helps asset managers and service providers: • The Scalable Advice Continuum • Identify areas of opportunity • Understand the role of advice in client relationships • Financial Advice Today— • Assess the organizational impact of advice delivery • Implement programs to support advisors as they The B/D Perspective • Compare financial planning initiatives transition to an advice-centric model • Supporting the Growth of • Examine the role of advice by advisor practice type • Design products to help advisors maximize advice Advice and Planning delivery • Clarify the role of fiduciary governance in client • Financial Planning Software relationships • Financial Planning • Prioritize technology for advice delivery Today—Advisors and Practices • Advisor Motivations to Increase Advice Delivery Key Findings: • Defining an Advisor’s • Financial planning advice is taking the role of "alpha" • Advisors still resist planning due to fears of Practice in client relationships. It is creating value in a reduced efficiency and a lack of subject matter • The Plan—Options in Advice commodotized marketplace. expertise. Delivery • Fully integrating planning systems into recordkeeping and CRM systems drives advisors’ adoption. Table of contents, exhibit list, and sample pages are attached Exclusive data in this report: Percentage of Advisors that Attain CFP Designation, by Firm Commitment Level, 2007 • Proprietary survey responses from broker/ dealers and advisors 30% 26% Related Cerulli Research: • Comprehensive review of home office financial Cerulli Edge—Advisor Edition planning support teams 20% 17% 18% 15% 13% Cerulli Quantitative Update: • Market sizing of the addressable advice market 10% 10% Intermediary Markets 2008 • Identification and segmentation of key advice delivery areas Cerulli Quantiative Update: 0% Advisor Metrics 2008 • Channel-centric review of current advice delivery Currently committed Supportive Accommodators practices of growth Advisor CFP® designation Advisors with CFP® desig- • Key drivers in delivering enterprise level advice goal for 2010 nation as of year-end 2007 CERULLI ASSOCIATES solutions Source: Cerulli Associates 699 BOYLSTON STREET BOSTON, MA 02116 Tel: +1 617 437 0084 To order this report or for more information, log on to our website at www.cerulli.com or contact: 28 MAXWELL ROAD, #02-04 • Price: US$12,000 Marketing & Business Development SINGAPORE 069120 • Faxable order form attached +1 617-437-0084 Tel: +65 6327 4045 • Purchase includes hardcopy, online access, CAmarketing@cerulli.com exhibits in Excel, Key Findings in PDF, and web WWW.CERULLI.COM recording of analyst presentation
  • 2. C The Cerulli Report A C e r u l l i A s s o c i a t e s Financial Planning: Trends in Advice Delivery USER EXAMPLES: The following are examples of how this report can be applied to business planning and strategic decision-making: m Scenario 1: A large asset management firm recognizes that broker/dealer firms are emphasizing advice delivery and financial planning. It seeks information on how firms and advisors are delivering these serv- ices so they can create targeted value-add programs geared specifically towards certain channels. Financial Planning: Trends in Advice Delivery provides insight into the following questions: • Which channels are leading in the delivery of financial planning and advice? (Ex. 19-24) • How are broker/dealers supporting their advisors’ financial planning advice delivery? (Ex. 26, 27, 37-40, 43) • What challenges do broker/dealers face as they strive for their advisors to adopt a more advice-centric model? (Ex. 26, 54) • What kinds of advice are clients seeking from advisors, and what services are most advisors offering? (Ex. 3, 36) Scenario 2: An independent broker/dealer firm is seeking information on how financial planning is sup- ported and offered at firms within the various channels so it can evaluate its offering for recruitment pur- poses. Financial Planning: Trends in Advice Delivery provides insight into the following questions: • How much financial planning advice is being offered by advisors at the various channels? (Ex. 19-24) • How are firms emphasizing their committment to financial planning and advice delivery? (Ex. 27) • Are advisors who offer financial planning more profitable? (Ex. 32-35) Scenario 3: A broker/dealer firm has concerns about its advisors’ capabilities, including delivering more advice competently on a greater range of topics. Financial Planning: Trends in Advice Delivery provides insight into the following questions: • How are firms and advisors delivering advice outside of a comprehensive financial plan? (Ex. 66-69) • How do advisors and firms support very specialized planning needs? (Ex. 72) • How are firms and advisors charging for financial planning services? (Ex. 73-75) For more information on how to apply this report to your firm’s unique needs, please contact our Marketing & Business Development team at +1 617-437-0084, CAmarketing@cerulli.com. 4 0
  • 3. C A C e r u l l i A s s o c i a t e s The Cerulli Report Financial Planning: Trends in Advice Delivery Price: US$12,000 To purchase this report, fill out this form and fax to +1 617-437-1268 or visit our website at Marketing & Business www.cerulli.com. Development +1 617-437-0084 Name: CAmarketing@cerulli.com Company: Address: Phone: Email: Special Feature: To view thumbnails of the contents of this report, please visit our website at www.cerulli.com. Go to Order/Info and click on ‘view’ next to the report title. EXHIBIT 14 EXHIBIT 28 With huge geographically dispersed advisorforces, the largest EXHIBIT 63 GOVERNANCE STANDARDS APPLICABLE TO FINANCIAL PERCENTAGE OF ADVISORS WHO ARE CREATING FINANCIAL CLIENT AGE BY ADVISOR PRACTICE TYPE, 2Q 2008 PROFESSIONALS, 2008 PLANS FOR THEIR CLIENTS, BY FIRM COMMITMENT LEVEL, broker/dealers need to be able to use their planning tools to not only deliver 3% 3% 3% 2007 planning documentation to clients, but also to help market the value of 100% 4% Financial Professional Associated 10% 11% Usual Business Structure and Services Applicable Standard and Governance Authority 77% 11% 12% Description Designation 80% planning itself. By focusing on planning functionality and also using their Suitability: FINRA Conduct Rule 2310. In recommending to 80 a customer the purchase, sale, or exchange of any 70 tools to create efficiencies in practice management, these firms are doing 23% 23% 64% 23% 25% security, a member shall have reasonable grounds for Registered Representative FINRA Series 7 Classic stock broker. Paid via transaction believing that the recommendation is suitable for such their best to address several goals simultaneously, thereby increasing the commissions to facilitate trades on client portfolios. 60 customer upon the basis of the facts, if any, disclosed by 60 such customer as to his other security holdings and as to effectiveness of the tool set beyond strictly planning-based measures. his financial situation and needs. 46% Fee-based advisor of a B/D firm, most often an Fiduciary for fee business: Investment Advisor Act of 1940, 50 Though home-office planning teams are generally not designed to be 30% 30% 32% 30% 40 Investment Advisory FINRA Series 65, 66, in employee of B/D firm. Provides investment advice Section 206(2) (see RIA). 40 profit centers, about half do assess fees directly to advisors to create a Representative (IAR) addition to Series 7 for a fee, under auspices of employer's RIA Suitability on transactional business: FINRA Conduct Rule registration. 2310 (see Registered Representative). 28% equitable economic model that assesses at least a portion of the group’s Individual who, in addition to registering as an Fiduciary for fee business: Investment Advisor Act of 1940, 30 19% 21% 20% 20 19% Dually Registered RIA plus FINRA Series investment advisor, has affiliated with an Section 206(2) (see RIA). 23% operating expenses to the most prolific users. In the case of those firms that Advisor/Firm 7 independent B/D firm in order to facilitate Suitability on transactional business: FINRA Conduct Rule 17% 20 commission business. 2310 (see Registered Representative). charge, there is a nearly equal split between those using a percentage of plan 13% 11% 8% 12% Provides comprehensive financial planning Fiduciary: CFP Board of Standards, Standards of 0 CFP ® (Certified services, often for an hourly or set fee (used in Professional Conduct. Acts in utmost good faith, in a 10 fees or a fixed charge. In either case, the advisor generally retains discretion Investment planner Financial planner Wealth manager All advisors Financial Planner Financial Planner™) addition to another listed licensing registration to manner he or she reasonably believes to be in the best provide investment advice for compensation). interest of the client. as to what the client is actually charged, and can choose to waive the fee if <40 50 to 59 70 to 79 0 Provides advanced investment analysis (used in Fiduciary: CFA Institute, Code of Ethics and Standards of Currently committed Supportive of growth Accommodators the client is unlikely to be unreceptive to a discrete planning fee. However, 40 to 49 60 to 69 ≥80 CFA ® (Chartered Financial Analyst addition to another listed licensing registration to Professional Conduct. Places the interests of clients above Financial Analyst ®) provide investment advice for compensation). their own personal interests. Advisors creating plans as of year-end 2007 Advisors' plan creation goal for 2010 some firms have mandated that the advisor charge a discrete fee, which the Sources: Cerulli Associates, Cerulli Associates-Financial Planning Association Advisor Surveys, Fiduciary: Investment Advisor Act of 1940, Section 206(2). Source: Cerulli Associates firms feel is necessary to separate their explicit advice from incidental advice, Cerulli Associates-Investment Management Consultants Association Advisor Surveys Registered Investment RIA registered with Must not engage in any transaction, practice, or course of Provides fee-based investment advice. Advisor (RIA) state/SEC business which operates as a fraud or deceit upon any and keep them away from any possible compliance violations. client or prospective client. Firms in the “supportive of growth” category are very similar to the In terms of client ages, investment planners and financial planners are Sources: FINRA, CFP® Board of Standards, CFA Institute, Cerulli Associates “currently committed” firms, but are generally lagging a few years behind in EXHIBIT 40 virtually indistinguishable. While the ages of wealth managers’ clients are the implementation process. These firms were a bit late to the game, but since WAYS HOME-OFFICE PLANNING GROUPS CHARGE ADVISORS similar, they do skew a bit older, with clients 60 or older accounting for 42% FOR FINANCIAL PLANS Although most of the underpinnings governing investment advisors they have realized the difficulties associated with maintaining differentiated of wealth manager clients, as opposed to 37% among the other two practice Set charge for access to were laid out in the Investment Advisors Act of 1940, many of the actual businesses based solely on investment management, they have jumped into planning system types. This difference reflects both general higher affluence levels of elder implications of fiduciary standards did not become clear until the Supreme planning with two feet to try to stake their claims. 6.7% Not applicable no fee is clients, as well as their desire to work with a fully comprehensive advisor as Flat fee per plan Court weighed in with its verdict in the case of SEC v. Capital Gains Bureau Firms in this segment face an uphill battle in that only a small portion 20.0% collected wealth transfer becomes an ever more pressing concern. 46.7% in 1963. The case was built around a registered investment advisor (RIA) that of their advisors are currently engaged in planning, but these firms have EXHIBIT 64 was buying securities in its own account, then recommending the securities committed the personnel and resources necessary to increase advisor interest CLIENT NET WORTH BY ADVISOR PRACTICE TYPE, 2Q 2008 to clients. The RIA was then selling the shares for a profit on the price rise in financial planning. In addition to creating integrated planning tools, many Net Worth Investment Financial Wealth All that generally followed these recommendations. The SEC made the argument of the planning resources of these firms are dedicated to “preaching the Range Planner Planner Manager Advisors Percent of plan fee <$250K 24.9% 22.3% 1.4% 21.4% that these transaction were essentially “a fraud or deceit upon any client or gospel” of planning through practice management groups and other internal 26.7% >$250K-$1m 34.1% 34.9% 10.5% 32.0% >$1m-$5m 27.9% 31.2% 41.9% 30.7% prospective client,” and thereby a direct violation of Section 206(2) of The avenues. Strong planning-focused messages such as “in order to find all Source: Cerulli Associates >$5m-$10m 9.3% 8.2% 27.1% 10.7% Investment Advisor Act of 1940. Although the defendants made the case that needs, you need to look at everything,” and “if you plan to succeed, you need >$10m-$25m 2.7% 2.5% 10.9% 3.5% they believed their recommendations were in fact in the long-term best In contrast, 46% of firms asses no discrete fee when advisors generate >$25m-$50m 0.7% 0.6% 4.9% 1.1% a plan,” become increasingly pervasive as these firms look to create the type >$50m 0.4% 0.4% 3.3% 0.7% interest of their clients, the court found that despite the fact that clients may financial plans. In this case, firms are generally finding that any disincentive of planning culture more prevalent at the “currently committed” firms. Sources: Cerulli Associates, Cerulli Associates-Financial Planning Association Advisor Surveys, not have been harmed, failing to reveal these circumstances created an unac- (such as a fee) will deter advisors from using planning systems. These firms Cerulli Associates-Investment Management Consultants Association Advisor Surveys The final category of firms, “accommodators,” don’t actively ceptable situation. Clearly the court was of the opinion that full and accurate have generally judged that the increasing product revenue generated by promote planning by advisors, but does allow advisors to engage in financial disclosure was not only preferable, but mandatory in any case where a planning clients will ultimately more than offset any incremental planning conflict of interest could possibly arise for an investment advisor. C Financial Planning: Trends in Advice Delivery C Financial Planning: Trends in Advice Delivery C Financial Planning: Trends in Advice Delivery C Financial Planning: Trends in Advice Delivery A 41 78 A A 93 128 A CERULLI ASSOCIATES Page 41 Page 78 Page 93 Page 128 699 BOYLSTON STREET BOSTON, MA 02116 Tel: +1 617 437 0084 28 MAXWELL ROAD, #02-04 SINGAPORE 069120 Tel: +65 6327 4045 WWW.CERULLI.COM File: Eblast 7/08
  • 4. TABLE OF CONTENTS INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 REPORT SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Report Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 METHODOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Quantitative Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Qualitative Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 KEY FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 SECTION 1: DEMANDING ADVICE—KEY DRIVERS IN THE EXPANSION OF FINANCIAL ADVICE . . . . . . . . . . . . . . . . . . . . . . .16 OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 WHAT DO YOU WANT IN FINANCIAL ADVICE AND PLANNING? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Investors' Perspectives: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Providers’ Perspectives: Finding Alpha . . . . . . . . . . . . . . . . . . . . . . . . . .24 Providers’ Perspectives: How Much Advice is Right? . . . . . . . . . . . . . . .27 Finding a Common Ground . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 DETERMINING THE VALUE OF ADVICE FOR PROVIDERS . .33 Defining the Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 Assessing Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 The Provider's Value Proposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 The Fiduciary Question . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Regulatory Evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 Measuring Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 THE SCALABLE ADVICE CONTINUUM . . . . . . . . . . . . . . . . . . . .48 Shifting the Peak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52 Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 SECTION 2: FINANCIAL ADVICE TODAY—THE B/D PERSPECTIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 Finding Your Place—A Channel Perspective . . . . . . . . . . . . . . . . . . . . . .54 C A Financial Planning: Trends in Advice Delivery 1
  • 5. Wirehouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Independent Broker/Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60 Bank Broker/Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 Regional Broker/Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65 Insurance Broker/Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67 Unaffiliated Registered Investment Advisors . . . . . . . . . . . . . . . . . . . . . .69 Direct Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71 Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73 SUPPORTING THE GROWTH OF ADVICE AND PLANNING . .74 Defining the Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74 Defining the Firm's Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76 Planning on Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79 Support Structure—The Home Office . . . . . . . . . . . . . . . . . . . . . . . . . . .88 Home-Office Time and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91 Strengthening the Ranks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95 Training—Preaching the Gospel of Planning . . . . . . . . . . . . . . . . . . . . . .97 Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99 FINANCIAL PLANNING SOFTWARE . . . . . . . . . . . . . . . . . . . . . . .100 Building Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102 Selecting a Planning Tool Set . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104 Core Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105 Secondary Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107 Client-facing Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109 Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110 SECTION 3: FINANCIAL PLANNING TODAY—ADVISORS AND PRACTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111 Advisor Practice Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111 Channel Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114 ADVISOR MOTIVATIONS TO INCREASE ADVICE DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115 From Transactions to Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116 Planning Challenges from an Advisor Perspective . . . . . . . . . . . . . . . . .117 Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120 DEFINING AN ADVISOR’S PRACTICE . . . . . . . . . . . . . . . . . . . . . .121 2 Financial Planning: Trends in Advice Delivery C A
  • 6. Planning on Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123 Advisors at Your Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125 Client Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126 Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .130 THE PLAN—OPTIONS IN ADVICE DELIVERY . . . . . . . . . . . . . .132 Modular vs. Comprehensive Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . .133 The Heavy Lifting—Plan Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .136 Finding the Right Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140 Product Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143 Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .149 PROGNOSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150 INDEX OF COMPANIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153 C A Financial Planning: Trends in Advice Delivery 3
  • 7. INDEX OF EXHIBITS 1. Managed Account Assets and Growth, 1993-1Q 2008 . . . . . . . . . . . .19 2. Titles of Primary Financial Service Providers as Reported by Investors, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 3. Desired Assistance with Financial Matters, 2007 . . . . . . . . . . . . . . . .23 4. Number of U.S.-based CFP® Certificants, 1996-2007 . . . . . . . . . . . . .25 5. B/D Views on Importance of Planning to Firm, 2008 . . . . . . . . . . . . .26 6. CFP® Board’s Financial Planning Process, 2007 . . . . . . . . . . . . . . . . .27 7. Cerulli Advice Continuum, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 8. Differences Between Modular and Comprehensive Advice . . . . . . . .29 9. Cerulli Wealth Tiers, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 10. U.S. Household Distribution by Net Worth Range, 1989-2008E . . .34 11. Percentage of Total Investable Assets Distribution by Net Worth Range, 1989-2008E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 12. Addressable Market for Scalable Financial Advice Delivery, 2008E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 13. Financial Advice Needs Assessment, 2008 . . . . . . . . . . . . . . . . . . . .37 14. Governance Standards Applicable to Financial Professionals, 2008 .41 15. Top Five Benefits to Firms of Providing Financial Planning Services, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 16. Scalable Advice Continuum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 17. Contrasting Distribution of Investors among Firms along Delivered Advice Continuum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51 18. Channel Matrix, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55 19. Wirehouse Channel: Number of Investment Advisory and Financial Planning Clients and Assets, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . .57 20. Independent Channel: Number of Investment Advisory and Financial Planning Clients and Assets, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . .61 21. Bank Channel: Number of Investment Advisory and Financial Planning Clients and Assets, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . .63 22. Regional Channel: Number of Investment Advisory and Financial Planning Clients and Assets, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . .65 23. Contrasting Firm Value Propositions in Regional Channel . . . . . . . .66 24. Insurance Channel: Number of Investment Advisory and Financial Planning Clients and Assets, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . .67 25. Scalable Advice Offerings through USAA . . . . . . . . . . . . . . . . . . . . .72 26. Highest Ranked Challenges in Encouraging Advisors to Do More Planning, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75 27. Variable B/D Commitment Levels to Financial Planning . . . . . . . . .76 4 Financial Planning: Trends in Advice Delivery C A
  • 8. 28. Percentage of Advisors Who are Creating Financial Plans for Their Clients, by Firm Commitment Level, 2007 . . . . . . . . . . . . . . . . . . . .78 29. Percentage of Firm’s Clients Who Receive Comprehensive Planning Services, by Firm Commitment Level, 2007 . . . . . . . . . . . . . . . . . . .80 30. Percentage of Firm’s Clients Who Receive Modular Planning Services, by Firm Commitment Level, 2007 . . . . . . . . . . . . . . . . . . .81 31. Percentage of Advisors Who Attain CFP® Designation, by Firm Commitment Level, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82 32. Breakdown of Current and Projected Advisor Revenues, by Firm Commitment Level, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84 33. Percentage of Advisor Revenue Attributable to AUM Fees, by Firm Commitment Level, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84 34. Percentage of Advisor Revenue Attributable to Commissions, by Firm Commitment Level, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85 35. Percentage of Advisor Revenue Attributable to Planning Fees, by Firm Commitment Level, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86 36. Prevalence of Planning Related Services Offered by Advisors, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87 37. Planning Home-Office Team Structures, by Home-Office Staff Size, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88 38. Home-Office Time Allocation, by Home-Office Staff Size, 2007 . . .91 39. Expense Breakdown of Home-Office Planning Group, by Home- Office Staff Size, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92 40. Ways Home-Office Planning Groups Charge Advisors for Financial Plans, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93 41. Advisors’ Previous Profession Before Becoming a Financial Advisor, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95 42. Advisor Age, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96 43. Methods Used to Educate Advisors on Financial Planning, by Firm Home-Office Size, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97 44. Stakeholder Interests in Planning Software Solutions . . . . . . . . . . . .101 45. Common Financial Planning Software Structures, by Home-Office Staff Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103 46. Multiple Feature Levels Considered in Planning Tool Selection . . . .105 47. Practice Type Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111 48. Advice Continuum by Practice Type . . . . . . . . . . . . . . . . . . . . . . . . .112 49. Advisor Channels by Practice Type, 2008 . . . . . . . . . . . . . . . . . . . . .114 50. Advisor Perception of Consumer Demand for Advice, 2Q 2008 . . . .115 51. Advisor’s Focus on Investment Performance, 2Q 2008 . . . . . . . . . . .116 52. Effect of Financial Planning on Client Relationships by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116 C A Financial Planning: Trends in Advice Delivery 5
  • 9. 53. Potential Benefits of Financial Planning, by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117 54. Perceived Challenges for Advisors to Increasing Advice Delivery, by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118 55. Advisor’s Expected Impact of Client’s Retirement Spend-Down, by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120 56. Advisor Time Allocation by Practice Type, 2Q 2008 . . . . . . . . . . . . .121 57. Practice Personnel, by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . .122 58. Advisor Compensation by Practice Type, 2Q 2008 . . . . . . . . . . . . . .123 59. Profitability Goals of Planning Activity, by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124 60. Services Offered by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . .125 61. Advisor’s Ideal Number of Clients by Practice Type, 2Q 2008 . . . . .126 62. Advisor’s Capacity to Accept New Clients by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127 63. Client Age by Advisor Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . .128 64. Client Net Worth by Advisor Practice Type, 2Q 2008 . . . . . . . . . . . .128 65. Average Assets Per Client by Advisor Practice Type, 2Q 2008 . . . . .129 66. Types of Plans Advisors Deliver to Clients, by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133 67. % of Advisors Delivering One Type of Advice to More Than 50% of Clients, by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . .134 68. Asset Minimum for Comprehensive Financial Planning Services, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .135 69. Types of Plans Advisors Expect to Deliver to Clients by Year-End 2010, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .136 70. Method of Financial Plan Creation, 2Q 2008 . . . . . . . . . . . . . . . . . .137 71. Time Elapsed Between Initial Client Discovery Process and Plan Implementation, by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . .138 72. Tools Used by Advisors in Creating Financial Plans by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .139 73. Challenges for Advisors to Charge Planning Fees by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140 74. Client Fees for Financial Planning Services, 2Q 2008 . . . . . . . . . . .141 75. Amount of Fees Charged to Clients for Financial Plans, by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142 76. Percent of Advisors Who Use Investment Products, by Product Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143 77. Advisor Allocation to Investment Products, by Product Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .144 78. Advisor Expected Change in Product Mix, 2Q 2008 . . . . . . . . . . . . .145 6 Financial Planning: Trends in Advice Delivery C A
  • 10. 79. Advisor Expected Change in Asset Manager Product Usage by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .146 80. Advisor Expected Change in Insurance Product Usage, by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147 81. Advisor Expected Change in Alternative Product Usage, by Practice Type, 2Q 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .148 C A Financial Planning: Trends in Advice Delivery 7
  • 11. REPORT SCOPE Financial Planning: Trends in Advice Delivery, the most recent study in The Cerulli ReportTM series, examines the ways in which firms and financial advisors deliver a variety of financial advice to individuals. The report focuses on three key areas: the market forces affecting supply and demand for financial advice, the support systems created by home offices to support advice delivery, and advisors’ application of advice delivery within their practices. The report provides detailed analysis of the evolving roles of advice delivery both on a firm and advisor level, and the implications these changes will have on client relationships over time. Though the majority of the analysis focuses on the broker/dealers and their affiliated advisors, consideration is also given to alternate distribution systems, such as registered investment advisors and direct distributors. Report Beneficiaries Strategies outlined in this report should help various types of firms operating within the financial services industry: • Broker/dealers: firms—including national full-service, regional broker/dealer, independent broker/dealer, bank broker/dealer, and registered investment advisor firms—that wish to gain a better under- standing of the evolving role of financial advice in client relationships and firms’ value propositions • Software and service providers: Firms that provide services to broker/dealers and advisors and wish to better understand the issues faced by these groups. • Asset Managers: firms—including mutual fund companies, banks, insti- tutional money managers, insurers, and separate account managers—that distribute their products through the various intermedi- ary channels and wish to understand and address planning-centric firms and advisors. 8 Financial Planning: Trends in Advice Delivery C A
  • 12. METHODOLOGY The following analysis of the product providers and their distribution strategies relies on a combination of quantitative and qualitative analyses conducted by Cerulli Associates. Our research draws upon our own market insight and proprietary data, as well as our analysis of third-party information sources. Quantitative Data A proprietary survey of the population of financial advisors serves as the foundation for identifying industry trends as well as product usage. These surveys include both Cerulli’s internal efforts, as well as a partnership with the Financial Planning Association (FPA) and the Investment Management Consultants Association (IMCA). Broker/dealers can participate in this survey in return for complimentary results; for further information, contact Cerulli Associates. Also included are results of a Cerulli Associates survey of home-office planning teams and their businesses. Finally, advisory business data was obtained from National Regulatory Services (NRS), a firm that captures the Form ADVs filed annually with the SEC. CA administers its surveys through our proprietary data-gathering engine at www.cerullisurveys.com. Qualitative Research As part of our ongoing research initiatives, CA analysts regularly interview key executives from asset management firms, distributors, and service providers as well as other industry observers. For the purposes of this report, CA analysts conducted a number of qualitative conversations with executives at firms involved in the financial planning and advice delivery. This included planning group department heads, executives at software providers, industry consultants and representatives of affiliated professional C A Financial Planning: Trends in Advice Delivery 9
  • 13. organizations. We also spoke with a number of financial advisors who are currently delivering financial advice to clients. All interviews were conducted on a background basis and without attribution. The conversations reinforced the findings of our survey work and provided additional valuable insights reflected in this study. As with all Cerulli ReportsTM, additional information in this report was obtained from third-party public and non-confidential sources that Cerulli Associates believes to be reliable, and we have made every reasonable attempt to verify it; however, CA does not guarantee its accuracy or completeness. Throughout this report when the term broker/dealer is used it generally encompasses the broker/dealer itself and any related investment advisory arm through which investor accounts are maintained and managed. 10 Financial Planning: Trends in Advice Delivery C A
  • 14. SAMPLE SECTION from THE CERULLI REPORT FINANCIAL PLANNING: TRENDS IN ADVICE DELIVERY
  • 15. of non-planners. So for these advisors, though the planning process seemed to be more time consuming, their approach was increasing the efficiency of their relationships, unless the planning-based advisors were working twice as long as their non-planning counterparts, which he highly doubted. Firms are currently using several strategies to minimize any negative impacts of a move to a planning focus within a practice, which will be discussed in depth later in this section. Defining the Firm’s Commitment A broker/dealer interested in motivating more advisors to make their initial forays into planning can address these barriers in several ways, which are addressed below; however, the firm must first determine its institutional level of commitment to financial planning. Essentially, the firm-level decision comes down to whether the firm aspires to be a planning firm or a brokerage or insurance firm that does some planning. EXHIBIT 27 VARIABLE B/D COMMITMENT LEVELS TO FINANCIAL PLANNING Firm Commitment Level Key Traits Planning champions at highest levels Strong home-office planning team Currently committed Fully integrated planning software systems Firm marketing is planning-focused Attempt to create planning culture Planning encouraged through practice management team Supportive of growth Well developed home-office planning team Planning systems supplied but not as fully integrated Little home-office support staff for planning Accommodators Allow advisors to charge for plans, under firm's or advisor's RIA Allows advisor to use self-selected planning system Source: Cerulli Associates At the highest level—“Currently committed”—we find firms that were essentially early adopters of incorporating the planning process into their businesses. These firms had strategically decided to make planning a focus of their business models and have been encouraging a planning culture throughout their organizations. Although not every client of these firms receives a comprehensive plan, nor is every advisor engaged in planning, the firms are both actively and passively working toward increasing advice 76 Financial Planning: Trends in Advice Delivery C A
  • 16. EXHIBIT 36 PREVALENCE OF PLANNING-RELATED SERVICES OFFERED BY ADVISORS, 2007 Core Offering (More than 75%) Planning-Related Services % of Advisors Asset allocation 99.1% Retirement income planning 95.4% Retirement accumulation planning 94.6% Education funding 90.0% Insurance (life, health, disability, etc.) 87.2% Estate planning 81.5% Extended Offering (50% to 75%) Planning-Related Services % of Advisors Investment manager due diligence 71.2% Cash management/Budgeting 67.1% Charitable giving 64.4% Employer benefits retirement planning 53.9% Limited Offering (Less Than 50%) Planning-Related Services % of Advisors Tax planning 44.5% Business planning (financing, transition planning, etc.) 42.0% Elder care planning 41.3% Trust services 41.2% Private banking 20.5% Concierge and lifestyle services 10.4% Source: Cerulli Associates The services advisors fall into three general tiers—core services (offered by more than 75% of advisors), extended services (offered by 50% to 75% of advisors) and limited services (offered by less than 50% of advisors). The services in the core category are generally addressed in a firm’s centralized modular or comprehensive planning software solution and for most firms represent the convergence of practicality and profitability. These services can generally be rather easily integrated into an advisor’s practice as they generally encompass topics covered in firm-element training or one mandated by regulatory agencies. With that being said, there are certainly measurable differences in knowledge in some of these topics, especially in the areas of insurance and estate planning, where the support of a strong home-office planning team could markedly increase the knowledge levels and quality of advice delivered by advisors in the field. While asset allocation and accumulation can be predominantly “science-driven,” through the use of calculators and other means, insurance and estate planning add more of an “art” element, as complex cases simply cannot be readily supported by even the most advanced software tools. In these cases, the in-depth knowledge of a skilled C A Financial Planning: Trends in Advice Delivery 87
  • 17. INDEX OF COMPANIES Ameriprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17, 46, 53, 61, 98 AARP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Advice America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Albridge Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Bank of America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63, 64 Charles Schwab . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64, 71 Citigroup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 D.A. Davidson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 DST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 eMoney Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Fidelity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71, 109 Financial Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63, 65 1st Global . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Garret Planning Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 H.D. Vest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 ING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Interactive Advisory Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Invest Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Lincoln Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 LPL Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61, 62, 65 Merrill Lynch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 58, 59, 114 Nationwide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Pershing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 PIE Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Primevest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69, 70, 89 Robert W. Baird . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 T. Rowe Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 U.S. Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 UBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56, 114 USAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 71, 72 Uvest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65 Vanguard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71, 72 Wachovia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53, 114 Waddell & Reed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 C A Financial Planning: Trends in Advice Delivery 153