Holistic Financial Planning:

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1 FIDELITY CLEARING & CUSTODY SOLUTIONS Holistic Financial Planning: How it can help you redefine your value to clients and pave the way for growth Market forces are providing a catalyst for advisors to redefine how they add value to client relationships. Commoditization of investment management, competition from emerging business models, and increased pricing pressures all contribute to these headwinds. Planning across the generations is also becoming more prevalent, with opportunities for advisors to help meet the unique needs of younger, as well as older, investors. Embracing holistic financial planning can provide a way to grow. This approach focuses on helping clients achieve their financial goals and life goals, along with navigating the difficult decisions they need to make in their lives most of which have financial implications. Potential benefits of offering a more comprehensive approach to planning include higher levels of retention and loyalty, deeper relationships, higher share of wallet, and coveted referrals. What s inside: Acknowledge market forces Play offense to grow Change investor perceptions Study common practices of planners Consider your path forward Adopting a new model for planning can provide opportunities to enhance how advisors engage with clients. Whether it s conducting intelligent client discovery on an ongoing basis, or shifting the conversation about how clients measure advisors effectiveness in helping them achieve their goals, this new approach can help improve investor perceptions about value received for fees charged.

2 ACKNOWLEDGE MARKET FORCES Market forces are providing a catalyst for advisors to redefine how they add value to client relationships. One approach to consider: Offer holistic financial planning. Whether planning is a new area for your practice or is already in place at some level, adopting a holistic, or comprehensive, approach can help clients achieve their financial goals, realize their lives purpose, and manage the important moments in their lives. Embracing holistic planning can also help provide a path for advisors to grow their business amid an array of market forces: Increased commoditization of investment management and competition from emerging business models. It s simply becoming more challenging for advisors to differentiate themselves amid the growing prevalence of low-cost index funds and ETFs, which are commoditizing investment management. What s more, digital advice platforms, which tend to rely on low-cost investment solutions, are attractive to feeconscious and tech-savvy investors, many of whom happen to represent the next generation. Mounting pricing pressures. The challenge to differentiate, in part, gives rise to pricing pressures felt by many advisors. Nearly one-third of advisors report that they feel pressure from prospects as well as clients to justify their fees. What s more, many emerging affluent investors would be more likely to work with an advisor if fees were lower. 1 ADVISORS WHO REPORT 55% OF EMERGING AFFLUENT INVESTORS WHO WOULD BE MORE LIKELY TO WORK WITH AN ADVISOR IF FEES WERE LOWER. A growing need for planning across the generations. Investors both young and old potentially benefit from holistic, or comprehensive, financial planning. Each demographic segment faces its own unique opportunities and challenges: Millennials, who are known to seek some involvement in their finances while maintaining control, stand to inherit at least $36 trillion in the next 50 years. 2 Gen X, while in its peak earning years, feels financially squeezed. Considered part of the sandwich generation, 44% of Gen Xers have a child under 18 living with them and more than 25% have a parent or relative in their household. 3 Baby Boomers: Income strategies for boomers can be complex in light of longer life spans, unpredictable health care costs, and estate and tax planning considerations. 74% OF ADVISORS BELIEVE PLANNING WILL INCREASE IN IMPORTANCE OVER THE NEXT FIVE YEARS, PRIMARILY DUE TO AN AGING CLIENT BASE. 31% Pressure from prospects to justify their fees 21% 1 The need to justify their fees to existing clients Source: Fidelity Investments 2015 Financial Advisor Pricing Study. Source: Fidelity Investments 2015 Financial Advisor Investor Planning Study. Fidelity defines emerging affluent investors as aged with investable assets of $50,000 to less than $250,000. They also have household incomes of $100,000 or more. 2 A Golden Age of Philanthropy Still Beckons; National Wealth Transfer and Potential for Philanthropy Technical Report, Boston College Center of Wealth and Philanthropy, May Northwestern Mutual Planning & Progress Study, January

3 What it means to embrace holistic financial planning Many advisors may consider themselves planners, but there are a variety of approaches when it comes to financial planning. Holistic planning is an ongoing process that may incorporate five key steps: 1. CONDUCTING ongoing intelligent discovery to be fully aware, at all times, of client needs, concerns, values, and behavioral patterns as life circumstances evolve 2. TRANSLATING this understanding into ongoing advice opportunities 5. COMMUNICATING investment results within the context of progress toward goal achievement HOLISTIC FINANCIAL PLANNING 3. DEVELOPING comprehensive financial plans that are updated regularly, using best-in-class technology 4. DELIVERING an investment strategy that aligns with client goals 3

4 PLAY OFFENSE TO HELP GROW Embracing a comprehensive approach to financial planning is more than a means to stay afloat. It s a way to grow. Our research shows that advisors who make goal achievement central to their overall client relationships enjoy higher loyalty, more referrals, and deeper relationships compared to those who mainly focus on investment management services. FINANCIAL PLANS INCREASE NPS PLANNING STATUS Have a written financial plan developed by advisor Don t have a written financial plan developed by advisor NPS 54 8 Higher levels of client loyalty and referrals Holistic financial planning can help prevent a loss of clients to digital advice platforms or traditional competitors. 95% OF ADVISORS WHO IDENTIFY AS FINANCIAL PLANNERS SAY FINANCIAL PLANNING HELPS THEM DIFFERENTIATE FROM DIGITAL ADVICE PLATFORMS. Source: Fidelity Investments 2015 Financial Advisor Investor Planning Study. 62% 17% Percentage of Promoters versus Detractors likely to switch firms with the advisor PROMOTERS ARE 3X MORE LIKELY TO HAVE REFERRED THEIR ADVISOR AT LEAST ONCE IN THE PAST YEAR. Our most recent Fidelity Millionaire Outlook Study revealed that the presence of a formal financial plan is associated with a higher Net Promoter Score (NPS ), that measures the likelihood that clients will recommend their advisor to colleagues and friends. 4 Millionaire investors with a formal financial plan are more likely to be considered Promoters, or loyal enthusiasts for their advisor, compared to Detractors, who are defined as dissatisfied customers by the Net Promoter Network. Additionally, Promoters are more likely to follow their primary advisor should he or she decide to move to another firm. Promoter loyalty also results in more client referrals. 4 A NPS is calculated by using a 0 to 10 rating in response to the question, How likely is it that you would recommend [firm] to a friend or colleague? Promoters score 9 to 10, Passives 7 to 8, and Detractors 0 to 6. Net Promoter Score is calculated by subtracting the % of Detractors from the % of Promoters. Definitions are from the Net Promoter System, Bain & Company, netpromotersystem.com/about/measuringyour-netpromoter-score.aspx. 4

5 Deeper relationships INSIGHTS ON PROMOTERS The propensity for Promoters to refer is likely attributable to their belief that the advisor helps them achieve their goals and considers their unique needs and preferences. Believe their advisor helps them achieve their goals 47% 94% Promoters are also more likely to say that their advisor discusses their goals at every meeting. Advisors benefit from a focus on client goals as well. All advisors who self-identify as planners tell us that planning helps them deepen relationships, and nearly all say that it increases their ability to grow client share of wallet. Believe their advisor considers their unique needs, goals, and preferences Advisor discusses goals with them at every meeting 19% 42% 44% Promoters 89% Detractors SELF-IDENTIFIED PLANNERS WHO BELIEVE THAT PLANNING HELPS THEM TO 100% deepen client relationships 93% identify opportunities to manage more assets for clients Source: Fidelity Investments 2015 Financial Advisor Investor Planning Study. 5

6 CHANGE INVESTOR PERCEPTIONS In light of mounting pricing pressures, embracing holistic planning can provide a tangible way for advisors to potentially improve investor opinions of the value they receive. For advisors with an existing fee-based practice, this boost in value delivery can help preserve and even potentially enhance pricing. Advisors transitioning to a fee-based model who embrace a comprehensive approach to financial planning may be better equipped to communicate the incremental value clients will receive under their new pricing structure. They may also be better able to communicate to younger investors, or emerging affluent investors who may be hesitant to work with an advisor because they are price conscious. 43% OF ADVISORS RECOGNIZE THAT IN ORDER TO MAINTAIN CURRENT PRICING OVER THE NEXT ONE TO TWO YEARS, THEY NEED TO ADD MORE SERVICES AND/OR DEDICATE MORE TIME TO RELATIONSHIPS. Source: Fidelity Investments 2015 Financial Advisor Pricing Study. 36% OF ADVISORS REPORT THAT THEY ARE ASKED FOR MORE TRANSPARENCY ABOUT THE SERVICES PROVIDED IN LIGHT OF THEIR PRICING. Source: Fidelity Investments 2015 Financial Advisor Pricing Study. A SHIFT IN VALUE DELIVERY, A POTENTIAL SHIFT IN INVESTOR PERCEPTIONS CURRENT Manages my investments in a manner that consistently beats established benchmarks FUTURE Offers planning, advice, and investment management that help me achieve the most important goals in my life, realize my life s purpose, and manage the important moments in my life. 6

7 STUDY COMMON PRACTICES OF PLANNERS Advisors who adopt holistic financial planning follow some common practices you may want to emulate: Embrace building relationships Relationship-building is the foundation for offering highly personalized financial planning. Taking the time to fully understand client needs and concerns, and how they evolve over the course of your relationship, can help build strong emotional connections and ultimately high levels of trust. The extra effort to build deep relationships, combined with intelligent discovery, can help uncover planning opportunities that may easily be missed by taking a business as usual approach that considers a client s complete financial picture yet does not build an emotional connection. Fidelity research has classified advisors who go the extra mile with clients as Relationship Builders. This group tends to have broader and deeper relationships with clients and is sought for advice on non-financial matters more often. Their greater involvement with clients is reflected in higher levels of assets under management and greater personal compensation when compared to Business-As- Usual advisors. INSIGHTS ON RELATIONSHIP BUILDERS Indicate that they give advice beyond financial matters to their clients Report that these clients reach out to them in tough times, even if not financially related Say that they socialize more often with their clients outside of the office Relationship Builders 47% 56% 74% 73% 93% Business-As-Usual Source: Fidelity Investments 2015 Financial Advisor Value Study. RELATIONSHIP BUILDING TRANSLATES INTO FINANCIAL RESULTS RELATIONSHIP BUILDERS MANAGE 40% MORE AUM AND EARN 14% GREATER COMPENSATION THAN BUSINESS-AS-USUAL ADVISORS Relationship Builders AUM Compensation $88M $200K 99% Business-As- Usual $63M $175K Source: Fidelity Investments 2015 Financial Advisor Value Study. 7

8 Make planning a process, instead of a one-time event When it comes to planning, client experience matters. Our research reveals that millionaire investors who are considered Promoters were more likely to benefit from formal financial plans that were updated within the last year. Additionally, ongoing discussions of goals may support regular intelligent discovery. 52% 23% Percentage of Promoters versus Detractors with a written financial plan updated in the last year by their advisor Use goal achievement to help clients measure success Since financial planning establishes a framework for future investment decisions, advisors have an opportunity to change the metrics of how clients evaluate them. Fidelity research revealed that nearly all millionaire Promoters believe their advisor helps them achieve their goals. It has also been found that high-net-worth investors rely on goal achievement to measure portfolio success. 94% Of Promoters believe that their advisor helps them achieve their goals 44% 19% Percentage of Promoters versus Detractors who report having ongoing discussion of goals (e.g., at every meeting) HIGH-NET-WORTH INVESTORS ARE 1½ times more likely to judge the success of their portfolio by achieving their financial and life goals than by comparing it to financial market performance and benchmarks Source: CEB, Windows on the Future, March

9 Use technology effectively to bring it all together One piece of software isn t enough for advisors who seek to approach financial planning comprehensively. Compared to investment managers, financial planners rely more heavily on a suite of applications and tools, each playing a distinct role. It s no surprise that planning software is center stage for financial planners, since it can help advisors become more productive and responsive to client needs. Aggregation tools capture and view the client s entire financial picture, while customer relationship management (CRM) plays a crucial role in cataloguing client data and documenting interactions, specific needs, and goals. Performance reporting systems are essential for measurement and monitoring against goals, as well as creating client reports. Millionaire investors also perceive a benefit from the greater use of technology. Millionaire Promoters are more likely than Detractors to agree that their advisor uses technology to enhance the services he/she provides. What s more, high-networth investors expect to manage most of their wealth management relationship digitally over the next five years. HOW ADVISORS RELY UPON TECHNOLOGY Financial planning software Aggregation tools CRM Performance reporting system 39% 45% 34% 53% Source: Fidelity Investments 2015 Financial Advisor Investor Planning Study. 66% Planners 57% 67% 73% 68% Investment Managers 38% Percentage of Promoters versus Detractors who agree that their advisor uses technology to enhance the services he/she provides 64% OF HIGH-NET-WORTH INVESTORS GLOBALLY WOULD LIKE TO MANAGE MOST OF THEIR WEALTH DIGITALLY OVER THE NEXT FIVE YEARS. Source: Capgemini, RBC, and Scorpio Partnership Global HNW Insights Survey,

10 Groom next-gen talent Future opportunities with next-gen investors can include providing services that may range from budgeting support, to planning for life events such as buying a first home, to managing an inheritance. Some firms, recognizing the need to be prepared to meet the needs of these younger investors, are hiring and training next-gen talent. For example, Securities America, Inc. has made next-gen talent and next-gen investors a strategic business development priority. As a result, the firm created its Associate Advisor Training Program specifically aimed at grooming next-gen advisors. Client advice and delivery play a central role as one of the program s five dedicated training modules. As part of this module, advisors are trained to create and present their value proposition as well as conducting in-depth client discovery. When recruiting young talent, advisors can change traditional We want perceptions our younger students advisors and young professionals to understand have of the the advisory importance business, of which include constantly cold calling. Fidelity research continually showing their value in shows that, in fact, the majority of new advisor time tangible ways, as that s crucial for is spent on financial and investment management. maintaining relationships and getting referrals. Kirk Hulett, Executive Vice President of Strategy and Business Development, SAI PERCENTAGE OF NEW ADVISORS THAT ASSOCIATE THESE ACTIVITIES WITH THEIR ROLE 30% Relationship management 62% Financial and investment management 8% Sales Source: The 2014 Fidelity Investments Recruiting Redefined Study. 10

11 CONSIDER YOUR PATH FORWARD Embracing holistic planning can help you redefine your value in the face of current market forces. Whether you re thinking about offering planning, or enhancing your current services, any changes in your offering may require a thoughtful approach to five key practice areas: Your firm s story Consider how to best communicate your redefined value to clients, prospects, and centers of influence. Recognize that message development encompasses story development and its delivery across a multitude of communication media. Client experience Consider how you engage with prospects during the sales process, as well as with existing clients on an ongoing basis. When developing your approach, determine how you plan to conduct a deep discovery to intelligently understand and validate client needs on an ongoing basis, as well as collaborating with them. Pricing Consider how to best translate your value into the price you charge for services. Understanding what competitors in your local market charge, as well as reviewing industry benchmarks, can be a good place to start with this effort. Technology and operations Consider all of the possibilities for leveraging technology to help increase productivity and build deeper relationships. This multifaceted effort may include adopting a best-inclass planning software tool and maximizing integration opportunities with all of the tools and resources you rely upon. Talent Consider how you hire and groom the right types of professionals to deliver on your intended value proposition. When interviewing a potential new hire, expand your assessment beyond the skill sets needed for the position. Consider evaluating whether the job candidate has the aptitude to support intergenerational needs, and the leadership qualities to become a future next-gen partner in your practice. Further, position the opportunity by showcasing the amount of time new advisors will be spending on critical activities such as financial planning and relationship management. ADDITIONAL FIDELITY RESOURCES How You Can Add Value Through Holistic Financial Planning: Firsthand takes from the field The Whole Truth About Talent: Delivering holistic planning may hinge on who you hire Upping Your Client Experience to Boost Your Long-Term Success: A case study on how United Capital redefined what it means to deliver guidance and advice Creating Advisor Advocates to Help Boost Referrals: The 2016 Fidelity Millionaire Outlook Study uncovers strategies to help enrich the client experience and turn HNW clients into Promoters 11

12 FIDELITY CLEARING & CUSTODY SOLUTIONS 200 Seaport Boulevard, Boston, MA Please contact your Fidelity representative to access resources and learn more about Fidelity s Insights on Advice. For investment professional or institutional investor use only. Not for distribution to the public as sales material in any form. The information contained herein is as of the date of its publication, is subject to change, and is general in nature. Such information is provided for informational purposes only and should not be considered legal, tax, or compliance advice. Fidelity does not provide legal, tax, or compliance advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Federal and state laws and regulations are complex and are subject to change. Laws of a specific state or laws that may be applicable to a particular situation may affect the applicability, accuracy, or completeness of this information. This information is not individualized, is not intended to serve as the primary or sole basis for your decisions, as there may be other factors you should consider, and may not be inclusive of everything that a firm should consider in this type of planning decision. Some of the concepts may not be applicable to all firms. Always consult an attorney, tax professional, or compliance advisor regarding your specific legal, tax, or regulatory situation. The third-party companies referenced herein are independent and unaffiliated with Fidelity Investments. There is no form of legal partnership, agency, affiliation, or similar relationship among the third-party service providers and Fidelity Investments, nor is such a relationship created or implied by the information herein. Third-party trademarks and service marks are the property of their respective owners. All other trademarks and service marks are the property of FMR LLC or its affiliated companies. Fidelity Investments 2016 Millionaire Outlook Study was conducted during the period of January 5 through January 22, It involved a total of 1, minute (on average) online interviews, with the sample being provided by TNS, a third-party research firm not affiliated with Fidelity. Respondents were screened by a minimum level of investable assets (excluding retirement assets and primary residence), age, and income levels. Fidelity Investments 2015 Financial Advisor Investor Planning Study was an online, blind survey (Fidelity not identified) conducted during the period of September 1 through September 15, Participants were recruited by Bellomy Research, a third-party research firm not affiliated with Fidelity, and included 390 advisors who manage client assets either individually or as a team, and work primarily with individual investors. Advisor firm types included a mix of banks, independent broker-dealers, insurance companies, regional broker-dealers, RIAs, and wirehouses, with findings weighted to reflect industry composition. Fidelity Investments 2015 Advisor Value Study was an online, blind survey (Fidelity not identified) conducted during the period of November 3 through November 16, Participants were recruited by Bellomy Research, a third-party research firm not affiliated with Fidelity, and included 427 advisors who manage client assets either individually or as a team, and work primarily with individual investors. These advisors are from a mix of banks, independent broker-dealers, insurance companies, regional broker-dealers, RIAs, and wirehouses, with findings weighted to reflect industry composition. Fidelity Investments 2015 Advisor Pricing Study was an online, blind survey (Fidelity not identified) conducted during the period of May 12 through June 2, Participants were recruited by Bellomy Research, a third-party research firm not affiliated with Fidelity, and included 512 advisors who manage client assets either individually or as a team, and work primarily with individual investors. The advisors are from a mix of banks, independent broker-dealers, insurance companies, regional broker-dealers, RIAs, and wirehouses, with findings weighted to reflect industry composition. The 2014 Fidelity Investments Recruiting Redefined Study conducted by Fidelity Institutional was based on multiple research methodologies, including four in-person focus groups with 44 participants in total and four online quantitative surveys with 600 participants in total. Research participants included hiring decision makers at financial advisory firms, students (college and MBA), young financial professionals, new advisors, college counselors, and career counselors interviewed from April through June of All of the research was blind Fidelity was not identified as the sponsor during any phase. Greenwich Associates, an independent firm not affiliated with Fidelity Investments, administered the study. Fidelity Family Office Services is a division of Fidelity Brokerage Services LLC, Member NYSE, SIPC. Fidelity Clearing and Custody Solutions provides clearing, custody, and other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC. 200 Seaport Boulevard, Boston, MA Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI FMR LLC. All rights reserved