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Kitces: 'The Model Has to Change Again'

Financial planning guru Michael Kitces on the future of financial advice: technology, specialization, planning versus investment guidance, and how to pay for it.

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Our guest on this week's podcast is Michael Kitces. Michael is a partner and the director of wealth management for Pinnacle Advisory Group, a Columbia, Maryland-based wealth management firm that advises on about $1.8 billion of assets. In addition, he is a co-founder of the XY Planning Network. As the host of the Financial Advisor Success podcast and the publisher of the popular financial planning industry blog Nerd's Eye View, Michael has established himself as one of the most prolific and insightful commentators on the financial advice business. A fixture on the speaking circuit and in the media, Michael often addresses key trends and innovations in the way advisors serve their clients; our interview with him focused on the future of the financial advice business.

Show Notes and References

Background and Professional Development Michael's formative years: "The only thing I really think I figured out by the end of college was … that I didn't want to do psychology, theater, or medicine" (0:59-2:51)

Dad’s old life insurance policy: How a wedding gift led Michael down a path to a career in the financial services industry (2:52-4:21)

“He was just a really different guy than everybody else”: Michael’s recounts his breakthrough realization that he wanted to be a financial planner (4:22-6:07) ·

How Michael used his pre-med training to overcome a crisis of confidence that he didn’t know what he was doing: “I probably shouldn’t be giving them advice; I’m going to hurt someone” (6:08-7:31)

Going deep to differentiate: “I’m going to get really good at these annuity benefit riders” (7:32-8:45)

Persuasion: Using psychology and coaching to help clients overcome their biases (11:41-13:01)

“Most of us just don’t want to say that about ourselves”: Clients don’t hire us to save them from themselves, but to get on a better path and save time (13:02-16:37)

“Zoom the camera out a little bit”: The key to helping clients through difficult times is being available, clearly communicating, and setting context (16:38-18:18)

“There’s very little research at all about what you’re actually supposed to do about this stuff” (18:19-19:56)

Financial Advice: Evolution and Great Leaps "Disturbingly like clockwork": Technology's role in propelling financial-advice from stock-brokering to the mutual-fund era to asset-allocation models (19:57-22:14)

  • "How May Day Remade Wall Street" by Jason Zweig (May 1, 2015; Wall Street Journal; Total Return Blog)
  • "So Easy a Baby Could Do It" E-trade commercial

Computers disrupted the stock-broker model and the internet disrupted the mutual-fund model. Michael on why he thinks software will disrupt the fee-based asset-allocation model (22:15-24:06)

An S&P 500 index fund just for you: “Technology is going to allow us to completely disintermediate not just mutual funds but most of the ETF complex as well” (24:07-25:36)

The Future of Advice "If we can do that with medicine and we can do this with clothing, we can do this with at least large portion of financial advice as well": Michael on delivering advice virtually (25:37-30:25)

“(Saying) ‘Oh no one’s ever going to want to work with an advisor virtually; it’s all in person’ … is like clothing stores insisting that Amazon was no threat to them 20 years ago” (30:26-32:56)

Technology leaps like robo-advice are less of a threat to the financial advisor than to the the back- and middle-office that supports them (32:57-33:54)

The great inversion: In the future, advisors will charge for financial-planning services and give away investment management for free (vs. today where the opposite often holds true) (33:55-35:36)

Best Practices for Delivering and Paying for Advice "We still have a huge industry gap": Not even 30% of financial advisors have achieved a baseline financial-planning designation—the CFP mark (35:37-39:20)

A question of when, not if, more exacting financial-advice standards will arrive: “The U.S. has become a laggard on fiduciary and competency standards” (39:21-43:21)

We can’t do financial advice for young people? Michael on why that’s ridiculous and how flat-fee or subscription-based advice will come to fill that void (43:22-46:51)

“I don’t … see anything wrong with the AUM model”: Why charging a percentage of assets-under-advisement makes sense for some clients, but will become less common in the future (46:52-48:56)

When it does and doesn’t makes sense to pay for financial advice by the hour (48:57:51:47)

About the Podcast: The Long View is a podcast from Morningstar. Each week, hosts Christine Benz and Jeff Ptak conduct an in-depth discussion with a thought leader from the world of investing or personal finance. The podcast is produced by George Castady and Scott Halver.

About the Hosts: Christine Benz and Jeff Ptak have been analysts and commentators on investments and the investment industry for many years. Christine is Morningstar's director of personal finance and senior columnist for Morningstar.com. Jeff is head of global manager research in Morningstar Research Services, overseeing Morningstar's team of 120 manager research analysts in the U.S. and overseas.

To Share Feedback or a Guest Idea: Write us at TheLongView@morningstar.com

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About the Authors

Christine Benz

Director
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Christine Benz is director of personal finance and retirement planning for Morningstar, Inc. In that role, she focuses on retirement and portfolio planning for individual investors. She also co-hosts a podcast for Morningstar, The Long View, which features in-depth interviews with thought leaders in investing and personal finance.

Benz joined Morningstar in 1993. Before assuming her current role she served as a mutual fund analyst and headed up Morningstar’s team of fund researchers in the U.S. She also served as editor of Morningstar Mutual Funds and Morningstar FundInvestor.

She is a frequent public speaker and is widely quoted in the media, including The New York Times, The Wall Street Journal, Barron’s, CNBC, and PBS. In 2020, Barron’s named her to its inaugural list of the 100 most influential women in finance; she appeared on the 2021 list as well. In 2021, Barron’s named her as one of the 10 most influential women in wealth management.

She holds a bachelor’s degree in political science and Russian language from the University of Illinois at Urbana-Champaign.

Jeffrey Ptak

Chief Ratings Officer, Research
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Jeffrey Ptak, CFA, is chief ratings officer for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Before assuming his current role, Ptak was head of global manager research. Previously, he was president and chief investment officer of Morningstar Investment Services, Inc., an investment unit that provides managed portfolio services through fee-based, independent financial advisors, for six years. Ptak joined Morningstar in 2002 as a senior mutual fund analyst and has also served as director of exchange-traded fund analysis, editor of Morningstar ETFInvestor, and an equity analyst. He briefly left Morningstar to become an investment products analyst for William Blair & Company, and earlier in his career, he was a manager for Arthur Andersen.

Ptak also co-hosts The Long View podcast with Morningstar's director of personal finance and retirement planning, Christine Benz. A full episode list is available here: https://www.morningstar.com/podcasts/the-long-view. You can find him on social media at syouth1 (X/fka 'Twitter') and he's also active on LinkedIn.

Ptak holds a bachelor’s degree in accounting from the University of Wisconsin and the Chartered Financial Analyst® designation.

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