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An Interview with Michael Kitces

Some people are more visionary than others.

David J. Drucker, 12/24/2009

Sometimes in our profession, as we veterans watch newcomers come and go, we spot a really bright light--a younger advisor who just sees the industry and his place in it so clearly that he makes us sit up and take notice. Michael Kitces is such an advisor.

Director of research for the Columbia, Md., Pinnacle Advisory Group, Michael also pens a newsletter--The Kitces Report--and a blog to keep his views in front of the public.

Interviewing Kitces was easy; I just asked him what he was up to and his current thoughts on the industry and everything flowed from that. We talked about the future of financial planning, the need for better analytical tools amid market calamity, and the necessity for business model changes to serve new client profiles.

Drucker: I know you've been doing a tremendous amount of public speaking lately on some very broad topics I'd like to get your opinions on. For example, what's your take on client communications and technology? Can client relationships be maintained only through face-to-face meetings, or can technology play a bigger role?
Kitces: The answer depends upon what you believe the core value of financial planning is, and there's no universal agreement on that. We give our clients both technical recommendations and advice, and we urge behavioral changes on them to effect planning results. The former, in my opinion, doesn't need to be face to face across the table. Videoconferencing and the Web will work just fine for advice giving because clients are just looking for an answer to a technical question from a knowledgeable professional. Another way of saying this is, "Am I paying just for advice or for help in implementing that advice?" Look at successful life and business coaches. They do all their work by telephone, sometimes never meeting their client face to face.

Drucker: How do you interact with your own clients?
Kitces: I'm no longer dealing directly with a client base, but what I'm seeing from others--including many NexGen members (a group Kitces is active in)--is that lots of advisors are becoming more technology-centric. For example, at Pinnacle we're saying instead of meeting with clients X number of times per year, perhaps we meet X minus 1 times and replace the one meeting with videoconferencing.

Drucker: Are there broader ramifications for this line of thinking?
Kitces: Sure. A firm's growth is limited if it doesn't deal with this issue because as the number of clients grows, more [expensive] staff time is needed to maintain relations if all meetings are face to face. It's a sheer productivity and efficiency matter. If we must visit some clients in their homes or our offices, then either the client or I am going to spend valuable time in traffic, which neither of us wants to do.

Drucker: Maybe client relationships are like friendships in that options for communication open up as we get to know our clients better. Face-to-face meetings are needed initially, but more and more, as time goes on, these can be replaced with less personal means of staying in touch.
Kitces: Yes, and it's do-able. If the average practice is made up of, say, 70%-90% local clients, then the rest are usually clients who started out as local and moved away. Advisors often maintain contact with those clients by Web or phone, not face to face meetings. So, if it can work for out-of-town clients, why not for in-town clients? Once the relationship is in place, it can be nurtured from a distance.

Drucker: Many NexGen advisors work on an hourly basis, and these indirect forms of communication may be a better fit for their business model.
Kitces: Precisely. It plays a role in how we deliver services to the middle class. Not everyone wants to spend $2,000 to have good friend who knows something about money; they just need an accurate recommendation from a qualified person. This is a challenge today. Close relationships with clients are good, but have we made that too centric to our core proposition of what financial planning means? With the hourly and project-planning business model, advisors can't afford to have deep relationships [requiring lots of in-person contact] because, if they do, the numbers don't really work.

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