A new research report from Cerulli Associates published in partnership with Osaic, shows that reliance on financial advisors has increased significantly among retail investors over the past decade — as has the perceived importance of having a comprehensive financial plan.
As of mid-2024, 53% of investors agreed that having a written financial plan is important, up from 41% of retail investors as of year-end 2014 and 38% in 2009. Clients also tend to feel a deeper connection to their advisors when the services they provide are "comprehensive" in nature, going far beyond oversight of the investment portfolio.
Against this backdrop, many advisors told Cerulli that they view themselves as comprehensive financial planners, but an objective review of their business models and service deliverables suggests that many firms are not truly living up to this characterization. Failing to do so can reduce a firm's growth potential in an increasingly competitive marketplace, the researchers warn.
Whether an advisor takes the time to understand an individual's goals, needs and risk tolerance (cited by 55% of clients) and whether the advisor looks at an individual's entire financial picture (49%) are both more frequently identified as a factor rated as being extremely important when choosing an advisor, according to the study.
Performance of investments relative to the overall market also matters (46%), but less so.
Consequently, in terms of new client acquisition, advisors whose service offerings are oriented toward comprehensive wealth management have a competitive advantage, the authors conclude.
What's in a Comprehensive Plan?
The Cerulli report identifies more than 10 key service areas that underpin truly comprehensive financial planning.
At the start of the list is investment management. While the oversight of investments is seen as table stakes by most clients, it is still important. Advisors may not be expected to blow away the S&P 500 in their portfolios every year, but they still need to ensure that clients aren't falling behind.
Next is income tax planning, which can include a wide range of services such as estimated tax payments and withholding, advice on income tax timing and tax-related aspects of other wealth management services.
Related to this is the service area of cash flow management. As the Cerulli authors point out, advice on how to manage cash flow shortfalls and savings strategies for cash flow surpluses are highly valued by clients.
Estate planning is another key area. Advisors can provide significant value by helping plan for the transfer of assets, the management of an estate and other issues related to an individual's death or potential incapacity.
This connects to charitable planning, through which advisors support clients on how to achieve goals related to philanthropy — with a particular emphasis on tax-related considerations.
While not applicable for every client, executive compensation planning is another key service area. This involves advising clients on the management of executive compensation — including stock options, restricted stock and non-qualified deferred compensation plans.
The remaining service areas are lending and credit management, risk management and insurance needs analysis, education planning and retirement income planning — including insight on Social Security claiming and elder care planning.
Who's Providing What?
The Cerulli report goes on to assess the degree to which the advisor industry is delivering these services on a comprehensive basis, finding a wide variety among firms in terms of their approach. The report also shows that firms often overestimate their level of comprehensiveness.
According to the report, about 7% of all advisors can be described essentially as money managers or portfolio managers. This is the group that is providing the least comprehensive level of planning services, with an average assets under management of $285 million and a market share of about 9%.
