Financial Planning for All

I’m always on the lookout for creative ways to use technology in industries that haven’t traditionally relied on gadgets and SaaS programs. It reminds me that everytime we think we’ve found the best way to operate, there’s always room for improvement. That’s why I was so excited to learn that one of my friends -- a Certified Financial Planner who started the firm Pland Financial -- believes his use of new technology makes him a part of a razor-thin, .3% minority in the industry.

So what’s he doing to set himself apart? Creating the optimal marriage between efficient, incorruptible tech and trusted human interactions.

Wait. Let’s go back to the ‘90s for a second.

To understand the impetus for changing the way CFPs operate, let’s take it back to 1996 when the hit book The Millionaire Next Door was published. Author Tom Stanley showed us that most people who live in expensive homes and drive luxury cars don’t actually have the level of wealth we’d assume, while Americans who have a great deal of wealth tend to live in less-upscale neighborhoods, bargain shop for used cars, and generally live well below their means.

The book provided strong support for the argument that someone’s behavior and habits are extremely influential when it comes to building long-term wealth, not just income.

What this means for today’s fintech

Stanley’s daughter Sarah Fallaw has now come along and -- understanding the importance of behavior in building wealth -- built software for financial advisors that helps them introduce behavioral changes in their clients (and written her own book about it). At its core, the system (called DataPoints) uses a performance plan to track six key behaviors that are strong predictors of the potential for economic success across an entire lifespan. I asked Nelson Matzen, founder of Pland Financial, how he uses the new tech to offer better service to his clients.

“It’s radically shifted my value proposition as a Financial Advisor,” he told me.

“We no longer need to track our client relationship based on net worth or the performance of a client’s portfolio. Stock markets go up and they go down. They’re not a good indicator of the success of the relationship. There has always been an art and a science to financial planning, but now thanks to this tech, we can put a hard science behind the art forms of accountability, coaching, behavior change, and incremental nudges. We can track all of these with a performance plan as clients improve behaviors such as frugality, social indifference, and responsibility. It’s really amazing.”

Advancements like DataPoints are going to be critical for changing the way advisors help their clients, and for reshaping the industry as a whole for the better. Take fees, for example. In the financial advisory world, many charge 1% of the client’s assets for simple investment management. But for a standard service like this, it makes more sense to use the online platform Betterment (or an equivalent) for 0.25%.

As Matzen put it, financial advisors need to “earn” their 1%, which they can do by coaching behavioral changes and actually teaching people to be responsible stewards of their money. Now they can do this better than ever thanks to this emerging tech.

Compliance

Compliance is a scary thing, and it’s why most advisors avoid starting their own business in the industry. It’s much, much easier to affiliate yourself as an independent contractor with a corporate RIA or a broker/dealer, who will take care of all compliance measures. However, this move to work for an existing company strictly because of compliance considerations has centralized brilliant minds, rather than letting them flourish and innovate on their own, wherever they are.

The rise of compliance software has been instrumental in ushering in a new era of financial advisors who can focus on what they do best. It’s allowed younger entrepreneurs to get into the industry and setup operations that cater to their peers.

That is, millennials are starting financial advisory companies to serve other millennials and creating unique products through emerging technologies. No longer are they burdened by the stress of compliance.

Payment

Traditional financial advisors typically earn their share by deducting a fee from the client’s total amount of assets. To ensure enough revenue, it usually requires an investment minimum, which by nature shuts out a large portion of the population, propagating the idea that financial planning is only for the rich.

Not anymore. Tools like AdvicePay have emerged that allow advisors to bill their clients either monthly or quarterly, just like any other service, and it can be paid by debit or credit card. This alone has huge ramifications, and dovetails nicely with the modern theory that wealth can (and, arguably, must) be “learned,” as we discussed above.

Accessibility

Matzen said he does have an office, but he actually encourages his clients to hold meetings with him virtually via Skype or Zoom -- and he offers a 10% discount for it. Why?

“So I can serve more people and avoid the headaches of traffic,” he said, matter of factly.

And that right there is a calling card of so many young entrepreneurs today. They use the technology available to them to work smarter, not harder. If you can book more meetings, reduce the number of headaches, help more people, and generate more revenue all the while, why on earth wouldn’t you employ such a strategy?

So here’s where we stand:

  1. We can now pair up the science of financial planning with the art of coaching and teaching thanks to new tech tools and concepts.
  2. Advisors who undoubtedly have the skill and experience of financial planning AND the coaching/teaching mentality can use new tech to stay compliant while pursuing their own vision as a groundbreaking financial planner.
  3. The actual service of financial planning is more available than ever thanks to more accessible payment models.
  4. Tech-savvy financial planners can streamline their services, reach more people, and maintain high revenue.

Combine all of these factors, and it’s a wonderful cycle that could lead to more advisors offering services similar to Matzen’s, and more financial knowledge among groups that hadn’t previously had access to it. All thanks to a willingness to introduce tech to a traditionally non-tech industry.

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