Some Wealth Advisory Companies are Getting Lazy. Is It in the Client's Best Interest?

Before I critique general industry trends led by some of the largest investment advisory firms, let me say this: I truly believe everyone should have a financial plan in place. It is absolutely worth the money. It’s the best tool for families and businesses to make smarter money decisions—both short and long term. Every financial advisor is being trained to provide this as a base-level service for their investors. If every financial advisor is doing it; it’s not a differentiator. By the way - if your advisor isn’t doing this, give me a call.

But many in the industry are abusing the benefits of financial planning as an excuse to be lazy with your investments. And that laziness improves company profits. Let me explain.

Over the past decade, local investment advisory shops have been gobbled up by national conglomerates looking to cut costs and absorb more revenue. The only way to smash hundreds of small companies into a behemoth is to create uniformity. This means packing thousands of investors into the same couple of investment allocations and shifting focus away from individualized investment returns. You get what everyone else gets.

What do they point to instead? Financial planning. And like I said, every good financial advisor is already doing it.

The firms (often the ones selling the index funds) argue, “it is extremely difficult to beat the market over time,” and they might be right. Not everyone needs to beat the S&P 500. Also, this totally ignores taxes, risk, and a whole swath of other issues. But it is one thing… scalable.

So, the result is tens (if not hundreds) of thousands of clients pushed into the same investment models. The companies discourage building out customized investments for each individual because it takes more effort to do so; and more effort = more time = more costs. And that hurts profits.

Scalable? Yes. More profitable? Yes. Lazy? Extremely.

The biggest issue, in my opinion, is the deflection from investment performance using the financial plan. The investment advisor no longer takes responsibility for how well your investments are doing when markets drop. They can chalk it up to market conditions and tell you to save a little extra next year because the software said so. Or worse, if your investment returns are significantly lagging the market, they can point to your financial plan and say, “that doesn’t matter, you’re still on track to retire in 10 years.” What if you could’ve been retiring in 7 years?

The devaluing of how a client portfolios perform for the sake of financial planning defeats the whole purpose of investing in the first place. Good returns, within your risk tolerance, over long periods of time help you reach goals quicker, and that’s a fact. Don’t let a 50-page document with projections distract you from that.

• Brett Miller, CFA, CFP®