The fundamental point of this two-part discussion is that the real secret to getting financial planning to the masses, to the middle class, is not about technology and efficiency and a lower cost delivery of financial planning. Sure, as we argued at the end of the first blog in this series, if a planner could see a few more clients every year, or be paid a little less, or the office rent was a bit lower, or the technology was a bit better to allow more efficiency, a planning firm might be slightly more profitable. But the real reason why it's not profitable to serve lower-income clients is none of those things.
The real problem is that no one knows how to generate 1,000 new clients every year without an inordinately high marketing/CAC (customer acquisition costs) expenditure that forces the prices for an advisor's services to be so high that few of the 1,000 clients could afford it. In other words, the real reason financial planners fail to serve the majority of Americans is not a matter of the cost to deliver financial planning, but the cost to market it.
Notably, this is also the fundamental reason why many of today's "robo-advisors" are in serious trouble from the start. They have approached the challenge of bringing financial planning or investment advice to the masses assuming that the key was just to have "better technology" to make the cost of delivery lower, while failing to recognize the challenging reality of marketing and client acquisition costs. That is why we see Betterment offering $40 sign-up affiliate fees to bloggers, why Personal Capital keeps rolling out new free software and tools (to give them prospects they can call upon), and why LearnVest recently announced a partnership with American Express and some 'large employers to be named later' (seeking out channels to efficiently deliver a high volume of clients).
The caveat is that it's not clear whether any of these approaches will generate the requisite client volume, especially since most of these firms have priced their services so low they have a very limited budget to invest in broad-based marketing and branding efforts in the first place. The reality is that financial planning is still purchased based primarily on trust, not raw cost, in the first place.
Conversely, recognizing the importance of driving down CACs with scalable marketing explains why many larger RIAs are thriving and threatening smaller RIAs, as they obtain the resources to reinvest into high-CAC marketing. Similarly, it explains why a firm like Edelman Financial Services can be so successful serving middle class and mass affluent investors (with $10B of AUM and 22,000 clients last year) with physical offices and branches and in-person meetings. That's because Edelman's marketing is so efficient (now being leveraged with the former CMO of Comcast), and its client acquisition costs are much lower, built on the back of Edelman's tremendously successful media presence of radio, television, books and more (allowing the firm to add a whopping 4,000 clients in the past year!).
Financial advisors have tried to address the challenge of getting big numbers of new clients in a variety of ways over the years. Those steps included pay-per-lead services to generate clients (and now a series of "NextGen" lead generation tools and services like Vestorly, AdvisorDeck, and AdviceIQ), to joining organizations that provide financial planning leads (from Garrett Planning Network to NAPFA to the FPA's PlannerSearch tool and the CFP Board's "Find A CFP Professional" service).
This is also why social media and inbound marketing approaches have become so appealing for some advisors: they represent a means of creating highly scalable marketing at a fraction of the cost of traditional marketing. Nonetheless, most planners seem to struggle with new client acquisition despite the various avenues available; the number of firms that actually bring on more than a few clients every year is surprisingly sparse.
