The Promise and Potential of Financial Advice

In the course of an intense 2-year professional pivot, I had the opportunity to dive into several fields before yielding to the inexorable pull of the wealth management and financial planning space - it just wouldn't let go of me.

As I took the time to reflect on why this is, I realized it's because this field, more than any other, has the potential and promise to make financial betterment achievable for people more than they probably could or would otherwise.

Financial wellness is not just a nice-to-have. Recent research suggests that financial stress, all else equal, is a leading factor for increased mortality among older American adults. This makes sense - after all, even the most basic necessities aren't accessible without money. We could argue that financial betterment is the route to all good things in life.

But to achieve financial wellness and betterment, it's not enough to just have access to planning and investing expertise. The industry can make a much bigger impact on a much broader swathe of society - if it takes concerted and thoughtful action to capture the opportunity.

What is Financial Betterment?

The wealth management and financial advisory/ planning space has defined itself in terms of what it does - investment management, financial planning, and the rest. But a client or end-user is thinking not in terms of its components, but in terms of how it will make their life better.

Looked at this way, what a user wants from this purchase is financial betterment. Financial betterment is first and foremost about making meaningful life aspirations financially tangible. Then it's about increasing the odds of success through feasible effort, effective and accessible tools and skills, with actions and behaviors that are easy to sustain over time.

For someone to go from dream to destination, they need to take many steps:

• Articulate a meaningful goal
• Translate that goal into tangible terms of what success looks like
• Explore multiple, smart paths to the goal to find the best path for their situation
• Translate their selected version into financial terms - resources and timeframe
• Put a blueprint together - that includes a roadmap, the financial inputs, the behavioral path, the financial vehicles, and the navigational plan to stay the course
• Most importantly, stay the course and maneuver as needed when things change.

Necessary But Not Sufficient - the Gaps to be Bridged

To make this a reality, multiple capabilities are needed:

• Goal setting, problem-solving to identify multiple and creative paths to goal fulfillment
• Financial planning
• Money management
• Behavioral coaching and support (including potentially financial therapy)
• Brain-smart product and offering design
• Business model innovation to address new pricing and service models
• Marketing and client acquisition

Here's the key insight - to fully deliver the promise of financial betterment, the industry's current capabilities are necessary but not sufficient.

From what I have learned so far, the industry has incredible strengths in the traditional areas of investment management, and to a lesser extent, in financial planning.

Strengths and capabilities are emerging in the areas of behavioral coaching and support. Marketing is also achieving increasing maturity as the field is beginning to recognize the need for a more disciplined and consistent approach to building strategic and sustainable client acquisition activities.

I see two big "blue ocean" opportunities for growth and advancement that are yet to be tapped in any meaningful way:

Brain-smart Design:

The financial services industry in general is notoriously greedy and wasteful of scarce human bandwidth. Whether it's understanding complicated jargon, overflowing product choices or jumping through hoops to acquire a product, it requires enormous expenditure of mental and emotional energy for even basic tasks.

The ordeal gets worse when it gets to maintaining the course to any kind of meaningful goal. Humans are forced use their scarce attentional resources to remember details, exercise enormous self control, and expend continuing effort simply to stay on course.

Cognitive and behavioral science has made tremendous strides that the wealth management and financial planning space can easily leverage from marketing all the way to retention and loyalty.

Business Model Innovation

The industry is predominantly ruled by an asset-based pricing model, with emerging pockets of success in other models that include tier-based pricing, hourly fee pricing and others (outside the sales-commission based pricing structure).

While these have their place, emerging demographics and market segments whose needs don't match the underlying assumptions get lost in the shuffle and lose out on opportunities to improve their financial position.

Innovative firms have taken the lead in developing new pricing models (with firms like Timothy Financial Counsel charging by the hour, for example). There is still a vast untapped opportunity to explore new service models over and above innovations in pricing.

Even traditional business theory offers plenty of frameworks for guidance. But new thinking, such as the approach laid out in the book "Unlocking the Customer Value Chain" by Thales S. Teixeira, offers even more exciting possibilities to unlock new market opportunities in this space.

I have come across a few exciting models, such as "Fiscal Fitness Clubs of America", which aims to be the Weight Watchers of financial planning and stewardship, but there are many more market niches and opportunities for additional innovation.

The Call to Action

What should forward-thinking players do to tap this opportunity?

In my view, there are four main imperatives for action:

1. Expedite the integration of emerging capabilities more explicitly into the business offering. Specifically, emphasize the value of behavioral support and goal clarification as tangible value-adding activities, while de-emphasizing superior returns as the default pitch.
2. Expand and advance the adoption of professional and user-focused marketing that is also human and authentic. Focus on what the user gets, and less on what the firm offers. (i.e., sell cars, not agglomerations of braking, fuel consumption and seating systems)
3. Aggressively expand and explore incorporation of brain-smart design into every component of the offering - from marketing, to service delivery and client relationship maintenance.
4. Explore, test and refine new business and service models that serve all steps needed to achieve financial betterment, not just a part.

Doing so will open the golden road to capturing both the hearts and wallets of emerging new generations of aspirers for whom the existing models just don't cut it.

References:

1. Eli Puterman et al., (2020). "Predicting mortality from 57 economic, behavioral, social, and psychological factors": https://www.pnas.org/content/early/2020/06/16/1918455117
2. "6 Types Of Niches For Financial Advisors To Differentiate Themselves", kitces.com, https://www.kitces.com/blog/6-types-of-niches-for-financial-advisors-to-differentiate-themselves/
3. Unlocking the Customer Value Chain, Thales S. Teixiera, https://amzn.to/2NunP28