Disruption of our Business Model

Michael Kitces email today addresses what PFGC has maintained for several years, our business model is being disrupted as the fees for AUM is declining. PFGC believes that fee compression is accelerating as the adoption rate for ETFS is accelerating. Kitces speaks of several different possible outcomes including that we give away for free managing investments while charging for wealth management advice. What Kitces fails to mention is that wealth management is a spotty proposition in that I doubt we could charge a fee every year as we do for AUM. Just saying we service your wealth management needs for fee and give you AUM advice for free doesn't feel like it would hold up to scrutiny. 

https://www.kitces.com/blog/cross-subsidy-industry-disruption-financial-advisors-bps-custody-indexing-2-0/?utm_source=rss&utm_medium=rss&utm_campaign=cross-subsidy-industry-disruption-financial-advisors-bps-custody-indexing-2-0&utm_source=Nerd%E2%80%99s+Eye+View+%7C+Kitces.com&utm_campaign=76c679cec8-NEV_MAILCHIMP_LIST&utm_medium=email&utm_term=0_4c81298299-76c679cec8-57148589

PFGC doesn't believe in an either or world or future. ETFs are simple, diversified and low cost but as PFGC points out in the Retention/Attrition Strategies webinar  we can still, will and do add value. Link is below.

https://attendee.gotowebinar.com/recording/611154028166285059

What PFGC has great clarity on is that whatever the outcome our fees will be lower, much lower. So a standardization of all our business processes is necessity so we can manage a lot more assets as we move to add wealth management to our offering.

I realize a lot of us consider ourselves wealth managers but the litmus test for PFGC is are we willing to move to a model like CPAs and Estate Lawyers where we are paid by the hour for our advice? I think not. We could do it but I doubt we would be paid at the same level we are today. Yes we do offer some aspects of wealth management but I believe we are many iterations of our business model away from not only claiming to be wealth managers but are licensed, certified and trained to deliver that offering.

Whatever the end game we will not leap to the conclusion. We need to concentrate on next steps in both managing AUM and adding wealth management capabilities and not worry about the ultimate endgame. Don't worry what you can't control/influence but concentrate on what we can change.

"one left-footed step per day" is PFGC's attempt to focus on the art of the possible and not on the impossible.

Danny