Taking my morning run today, I was contemplating the challenges of our world right now. COVID-19, racial inequities and cities being inundated by demonstrations, some peaceful and some not. Yet, as I write this, the markets are up (again) and most of the advisors that I know are safe working from home and providing value for their clients. 

I ran past my house still struggling with the disconnect of what I see on the news and social media with the conversations that I have in my work life. Yes, the CARES and SECURE acts are opportunities to provide real planning for clients. Yes, helping them reach goals like the education of their children and a comfortable retirement is important. But what are we doing for people who don’t already have significant wealth? In an AUM world, what are we doing for people who don’t have AUM?

Black and white facts about wealth

Nick Maggiulli is the Data Scientist for Ritholtz Wealth Management, and he writes a blog called Of Dollars and Data. In his June 2 post, “How Big is the Racial Wealth Gap,” Nick takes a deep dive into the racial wealth gap in the United States and finds that net worth inequality between black and white households are a factor of 10! I will let you go to his findings and conclusions, but as I read his blog I could not help thinking that advisory fees may be a symptom of a much bigger problem. In today’s AUM world, many advisors have businesses that are structured to only work with people that are already wealthy. How does that help change our world?

In our 2015 and 2018 follow up Fees at a Crossroads Revisited, Raef Lee and I discussed the emerging trends of alternative fee schedules. Our research showed that AUM typically fit best for older clients who wanted to delegate their financial matters to an advisor. We suggested that the AUM model didn’t work for younger and more hands on investors – from the perspective of the model. I think we may have been biased in our writing, thinking too much about the advisor’s business and not about the actual clients. 

fees are still at a crossroadsThe paper discussed the “accommodation” client as a small account, typically that of a friend, COI or children of our wealthier clients and we suggested that the advisor could create a different service or planning model for those accommodations. Today I would suggest that we have to create different models. If we are looking to help solve some of today’s issues, access to financial planning and advice can’t only be for the people who have large account balances. As Nick Maggiulli suggests, if we want to reduce social inequality, we must reduce economic inequality. I would suggest that quality financial advisors, providing real valued advice could help with that. But, the AUM model doesn’t work for everyone. 

4 steps advisors can take to help

You don’t have to change your business model overnight, your existing clients will be fine. I would, however, think about how you can help others that may need your guidance. Things to consider

  1. What does your basic planning cost? Can you create a new fee and service model that works hourly, on a retainer or flat fee — one that can be more attractive for someone who needs help, yet doesn’t have a huge new worth or AUM? What can you do to promote that model and get your message out there?
  2. Think about pro bono work. The FPA has a great program to get you started.
  3. Teach. Volunteer to teach basic financial planning at schools, churches, community centers and other places where people can learn how to become more active in managing their finances.
  4. Hire. Consider your next hire as an opportunity to diversify the financial profession.  What can you do to diversify the profession?

None of these steps will solve the problem overnight. All of them are a great start. Do you have any other suggestions? Stories you want to share? Leave a comment.

We all can do something to make things better. It can start with helping someone in need.


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