Envestnet | MoneyGuide has published the findings of its latest survey on the state of the financial planning industry according to advisors, along with their outlook on fees, as well as perceived challenges and threats in the current environment, in a new white paper titled State of Financial Planning and Fees: The Bigger Picture. Based on the survey results, financial planning services are on the rise, with many advisors charging a fee for their services, and these fees have steadily increased over the last five years.
Want more detail? You can always reach Envestnet directly via the VIP Messenger.
The financial advisor industry is growing and evolving. According to industry statistics compiled by IbisWorld, the market size of the financial planning and advice industry has grown by 1.8% per year on average between 2015 and 2020, which is faster than the overall economy. Advisors today are providing more holistic advice and financial planning services to a larger client base. The impact of COVID-19 should only further accelerate this trend.
"According to our research, more advisors are offering comprehensive financial plans in 2020 than three years ago," said Tony Leal, President of Envestnet | MoneyGuide. "While we are encouraged by this data, we are not surprised. Today, financial planning has taken its rightful spot as the centerpiece of wealth management, as it is a critical piece of the financial wellness puzzle. From saving to spending, budgeting, borrowing, and more, clients want to discuss their entire financial picture with advisors – and this survey finds advisors are being able to charge more for these services."
With financial planning taking center stage, the question becomes how advisors should charge for their services. To help address this question and take the pulse of the industry, MoneyGuide conducted this survey of more than 1,600 advisors in September 2020. This report represents the third wave of the study, with prior waves in 2015 and 2017.
Demand for financial plansis growing: The number of clients with a financial plan has been increasing since 2015. More than half (55%) of advisors' clients have a financial plan in 2020, up from 48% in 2015. In addition, advisors providing comprehensive planning grew 39% from 2017.
3 out of 4 advisors charge some type of planning fee: Advisors charging a fee, commission, or via AUM for financial planning has jumped to 72%, up 8% from 2017. Of the 38% of advisors who charge a separate fee for a financial plan, almost two thirds (65%) charge a flat fee and almost one in five (18%) charge an hourly fee. Interestingly, 8% charge a subscription fee. Additionally, 29% of advisors who charge some type of fee are considering implementing a different fee model in the future. For example, of those advisors, 44% are now considering implementing a subscription model in the next 12 months.
Financial Planning fees are on the rise: Since 2015, we have seen an increase in the fees charged. Flat fees went up by almost 50%, averaging $2,482, and hourly fees went up almost 25%, to $257. On the other hand, those who charge as a part of AUM have maintained a fee rate steady around 1% since 2015.
"Financial plans can serve as key differentiators for advisors, and a driver of business growth," said Joe Miller, Chief Operating Officer of Envestnet | MoneyGuide. "Indeed, almost every advisor (95%) we surveyed who provides financial planning services also receives referrals from their clients -- on average, these advisors receive six referrals per year from their client base."
Participation increased from under 1,000 in 2015 to over 1,600 advisors in 2020. The web-based survey was conducted in August and September 2020. Respondents came from numerous sources, including associations, publications, and advisors using the MoneyGuide platform. They represent a range of advisors from Registered Investment Advisors to Independent Broker Dealers and Financial Service Firms.