You Get What You Pay For … Financial Planning Edition

Wall Street Journal columnist Jason Zweig, one of our favorites in the personal finance space, wrote an article August 7 about a new service for delivering low-cost, yet “comprehensive” financial planning to the masses.

Certainly, there are millions of people who are not engaged with a professional advisor and could benefit from guidance regarding their money decisions.

But we wonder whether this new service from Veritat Advisors will demonstrate value given the exceptionally personal and specific questions that most people have about how to protect their risks and build financial security through a lifetime of events and decisions.

In Veritat’s advisory model, customers submit financial information and high-level goals to Veritat’s financial planning engine. A financial plan is produced and customers then meet with a Veritat advisor via video link on the internet.

The advisors then help customers work with other providers to open and manage investment accounts, purchase insurance and complete basic estate planning documents.

Veritat charges a monthly fee from $25-$40, in addition to the initial financial plan fee of $250. It’s a low cost for the basics of a fairly generic, but suitable plan and investment strategy.

Zweig writes that Veritat expects, given the leverage of automated systems, that a single advisor could work with 1,000 clients per year.

Let’s review some basic math about this workload. If the advisor works 50 weeks a year at 40 hours per week, that’s 2,000 working hours. If the advisor had incredible productivity and spent every minute of those hours actually working on a customer’s financial plan or reviewing it with them, the advisor could spend just two hours per year per client. Of course, it’s not possible to be that efficient. There are many other obligations over a year of work that require the time of any kind of employee. So, being generous, a customer’s financial plan and ongoing recommendations likely would get an hour and a half or less of a Veritat advisor’s time over the course of a year.

The upside of this is maybe more people will seek financial advice and be able to better manage their current budget, investments and basic financial decisions. This way, they’ll be better prepared for life’s transitions and retirement.

In our experience, however, providing real value in a financial planning and investment management relationship calls for a much more personal approach, not an “advisor” interpreting the results of a software program and recommending a model portfolio that is “suitable” for someone near the same age, with similar income, assets and tolerance for the ups and downs of investment markets.

Good financial advisors also add value for their clients by being available as often as is necessary to help them through the issues that they face—an important life transition or a question about financial options that they have.

The impact of a relationship with a qualified advisor, personally looking after your finances and how they relate to your goals, is worth far more than $40 a month. This is especially clear when considering that at a minimum, we expect to spend at least 20 hours per year on even the most simple relationship with a client.

~ Brooks, Hughes & Jones, Partners in Wealth Management — Gary Brooks, CFP®, Allyn Hughes, CFP®, CLU, ChFC, Nancy Jones, CFP®