The Soft Side of Planning

To my reading, the rise of the independent financial planner is the most significant financial event of my tenure at Morningstar. We did not anticipate this movement, but it proved crucial to our company’s success. More importantly, millions of investors have benefited from this development as financial services began to work for those who purchased them, as opposed to mostly enriching those who sold them. It was a powerful and profound change.

The first phase of this transition is well-documented. A new breed of advisors refused to view themselves as a distribution arm for financial products. Rather than saying, “I have Big Brokerage Company’s logo on my business card, my job is to move as much Big Brokerage Company product as possible,” these advisors affirmed their commitment to do what was right for their clients. Perhaps the best fund was from those firms that had traditionally paid them richly for selling their fund, but likely it wasn’t. These new advisors severed their old compensation links and set out to work solely in the best interests of their clients.

The then-growing field of personal finance journalism turned to these less-conflicted advisors for quotes and insights. Ironically, a small RIA with a fledgling practice was far more likely to be quoted in the national press than was a million-dollar-earning, corner-office broker from a big firm.

The public also harkened to financial journalists’ calls to buy only no-load funds. Many turned to independent advisors because their traditional advisors could not sell them those funds. Glowing press coverage of star no-load fund managers created further pull demand for independent advisors. In what became a virtuous circle, press attention, plus regulatory changes, plus the burgeoning independent planning movement combined to alter the financial-services landscape.

But independent advisors were on a mission bigger than just removing obvious conflicts. These pioneers were fueled with a passion for meeting clients’ needs, and a second, evolutionary development quickly followed on the heels of the revolutionary decision to divorce financial advice from the product provider. These new advisors began to morph from investment advisors to holistic planners. You could see the trend in the agendas for planning conferences. The investment track, formerly the core of most planning conferences, began to shrink. In its place: sessions on softer skills like setting life goals and helping clients manage traumas like divorce or illness.

While much of the established financial-services community overlooked the significance of these developments, they did not go completely unnoticed. Bob Veres brilliantly captured these trends in his insightful writings. And while it was easy for critics to deride it all as silly New Age rhetoric, cutting-edge advisors knew what they were doing. While no business-school class project would have foreseen the success of this pivot, these advisors, simply by virtue of pursuing better ways to meet their clients’ needs, were also finding ways to strengthen their practices by further bonding with their clients.

I recall in the early days of Morningstar, several advisors complaining that our research was available to the general public through libraries. "Why would the client need an advisor, if they can go to the library and read what we're reading?" was their complaint. Today, it's inconceivable to think of an advisor expressing such a concern. Advisors have so successfully transitioned their practices from investment-transaction-based activities to holistic planning, and in the process have so deepened their ties to their clients, that they now have little fear of losing their clients to competing services. Witness the very limited concern from most advisors over robo-advice this decade, compared to the outrage many brokers expressed over Money magazine's giving quality financial advice to the masses in the 1980s.

The independent planning community is still evolving in interesting ways. Once advisors reoriented toward the client and away from the provider, a string of powerful changes was set in motion. While the range of activities under the planning umbrella is complex and diverse, the winning firms have a shared mantra: The client’s success is paramount. They grasp the key fact that has long eluded Wall Street: If the investor doesn’t win, everyone else in the process has failed. By embracing soft skills and moving beyond simple transactions, independent financial advisors put themselves on the winning side.

This article originally appeared in the Spring 2019 issue of Morningstar magazine. To learn more about Morningstar magazine, please visit our corporate website.