Financial Planning Industry Analysis

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US Financial Planning Industry: Challenges

The United States financial planning industry is currently undergoing an enormous transformation. While the industry as a whole is making great strides in terms of growth and opportunity, financial planning professionals are facing several obstacles in their day-to-day operations. Some clear challenges facing the United States financial planning industry are fee compression, disintermediation, managing client expectations, and adhering to regulatory changes.

Fee Compression

  • One of the largest challenges that financial planning firms are facing today is the growing issue of fee compression. According to the CEO of Dana Investment Advisors, Mark Mirsberger, fee compression is a significant hurdle to overcome “in the face of rapidly rising research, regulatory, and technology costs”. Mirsberger claims that the fees for advisory firms, asset management, and brokers are reducing at an accelerated pace.
  • Individuals are increasingly found discounting how advice is valued. Over the years, people have found purchasing cheap, market-tracking Exchange Traded Funds (ETFs) to be a profitable strategy. As a result, financial advisors are finding it difficult to persuade them to pay fees.
  • According to the founder of the Carson Group, Ron Carson, while advisory fees have declined by one basis point in the past decade, service costs have tripled. Product commoditization within the financial planning industry is found to be a factor in the rise of fee compression.
  • According to a fintech start-up, Ethic Inc., fee compression can be overcome by directing investor funds through environmental, social, and governance (ESG) based investments. Mark Mirsberger also believes that financial planners will have a good opportunity to integrate ESG data into their clients’ investments to enhance risk-adjusted returns and investment research.
  • It is recommended that financial planning firms demonstrate value and stay connected with clients through transparent communication. By adopting a disciplined approach in client communication, planners and advisors can reinforce the value of the fees they are paid.


  • Disintermediation is another colossal challenge that financial planning firms are facing today, according to the principal of Gofen & Glossberg, Charles S. Gofen. With the advancement in technology, people have access to a wide range of tools, information, and financial material to make investment decisions and thus, prefer to make these decisions themselves rather than hiring a financial expert. People have found that diversification can be achieved at a reduced cost through ETFs without having to pay trading commissions.
  • Industry experts believe that due to disintermediation, there is more risk of people making wrong financial decisions. In terms of asset management, advisors and managers are found to be disintermediated from their clients primarily by technology.
  • According to Charles S. Gofen, investment professionals can overcome this challenge by addressing each client’s specific goals based on their portfolio risk, efficient saving strategies, and optimal asset allocation. Gofen believes that advisors “can offer wisdom on a wide range of financial issues that most people don’t have the inclination, energy, and expertise to determine for themselves”.

Managing Expectations

  • Studies indicate that servicing and managing the expectations of clients are some of the most trying of challenges faced by advisors today. Financial planners have found clients to have unrealistic prospects for their portfolios and in addition, expect higher service.
  • These unrealistic expectations of clients stem from the fear of their financial future. Investment professionals, therefore, have difficulty in calming their worries and formulating expectations that are deliverable and more realistic. According to an analysis conducted by the Pew Research Center, over 48% of financial advisors work with clients “who meet their minimum account size” and categorizing clients based on revenue or assets makes it more difficult to serve each client’s needs.
  • The managing director at SEI, John Anderson, recommends financial advisors to group clients according to their interests and needs rather than revenue and assets. This way, financial planning professionals will be able to “better personalize their services and advice”.
  • Financial advisors would have to consistently demonstrate “how they add value to the investing equation” for their clients. It is, therefore, vital for professionals to help clients maintain a lasting perspective with their investments.

Regulatory Factors

  • According to an article published by the CNBC, regulatory pressure continues to challenge the country’s financial planning industry. Factors such as the rise of securities compliance costs and the increase of omission premiums are driving regulatory confusion among financial firms.
  • Due to the rising number of investment scams, people are demanding a higher level of transparency in the entire investment process. It is expected that further industry reforms are likely to increase the growing regulatory pressure in the financial planning market. As a result, smaller financial firms would either be acquired or merged with larger financial firms to reduce compliance expenses.
  • The ‘Regulation Best Interest’ rule passed by the Securities and Exchange Commission dictates financial professionals offer advice that best suits the client rather than offer solutions that are more suitable to investors. While the fiduciary standard is an improvement over the previous suitability standard, there are conflicts of interest in terms of compensation. Clients are increasingly becoming aware of the fiduciary standard which further pressurizes the financial planning firms in adhering to the benchmark.

Research Strategy

To determine the challenges faced by the United States financial planning industry, we began our search by looking through industry-specific reports from websites such as Entrepreneur, Financial Advisor Magazine, and Journal of Accountancy; research studies published by some of the most prominent financial planning firms in the United States such as Edelman Financial Services and Carson Wealth, market analysis reports from websites such as Pew Research Center; and media reports from websites such as Forbes, The Financial Times, and CNBC. After an exhaustive search through these channels, we were able to identify four clear challenges faced across every branch of the financial planning industry. The challenges were chosen based on industry expert consensus and common themes found across several industry reports.
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US Financial Planning Industry: KPIs

Three key performance indicators used by businesses in the financial planning industry include profit per client, assets under management, and client retention rate.

Profit Per Client

Assets Under Management

  • Assets under management is tied directly to overall revenue. Additionally, AUM trends over time can help a firm determine if it is growing and how quickly.
  • Furthermore, firms should separate new assets under management and additional assets under management due to market performance. By doing so, firms can determine if the increase is due to new (or existing) clients increasing their investment amounts, which can then indicate whether the firm can survive a period of poor market performance.

Client Retention Rates

  • This metric is important for a successful business because it allows business to identify if they are successful at client retention or if they are potentially wasting money and time on an unsuccessful effort, and therefore if their business overall is healthy.
  • Additionally, firms should monitor retention rates in order to ensure that asset outflows are not detracting too much from overall assets under management and therefore an indication of a weak firm.

Research Strategy

Indicators were determined to be commonly used based on their mention by multiple experts as KPIs firms should track. We make the assumption that most firms are following this expert advice over tracking other, less frequently mentioned KPIs.