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How to Illustrate the Value of Financial Planning

Monica Ruelas April 11, 2024

value of financial planning

Has a prospect ever asked you, “What is the true value of financial planning?” It’s a common question, and it can be challenging to provide a detailed response before the discovery process. Because of its complexity and personalized nature, planning has a messaging problem.

Around 88 million U.S. households want guidance from a financial professional.1 Two-thirds of them don’t have a financial plan.1 What’s holding them back from hiring a financial advisor?

In a word, cost. Around 28 percent of unadvised consumers think hiring an advisor would be “too expensive.”2 They aren’t sure what value they would get for their money, again pointing to flaws in messaging.

The following is a deep dive into the research on the value of financial planning. These proof points can help you craft a value proposition that consumers can easily understand. At the end, you’ll find a free resource to help you put your best foot forward.

3 Qualitative Benefits of Financial Planning

1. Reduced financial anxiety. One of the key questions eMoney researchers ask advisors’ clients is whether they feel their advisor’s guidance helps reduce their anxiety. This is a “value driver,” as defined in Bain’s Elements of Value® study.3

Our 2023 Beyond the Plan research took this a step further with the finding that 61 percent of those with tech-forward advisors have less anxiety, versus 38 percent of tech-averse advisors’ clients.4 To be classified as “tech-forward,” the advisor had to provide access to a client-facing planning portal, believe tech is crucial to the client experience, and use the client portal as part of their planning process.

The “peace of mind” factor is perhaps why 66 percent of firms classified as innovators say financial planning technology delivers the highest return on investment of all the tools in their tech stack.5

A reduction in financial anxiety was also a key outcome we used to compare practices where only a small fraction of clients had financial plans, versus firms that create a plan for every client. The chart below shows why leading with planning represents a competitive advantage.

Source: eMoney Evolution of Advice Research, July 2023, Advisors n=504.

2. Motivation. This is another value driver identified by Bain, which should sound familiar to financial planners who dive into estate planning, tax planning, and areas where the client must consult with outside experts. The advisor and their team provide crucial accountability through reminders and meetings on what actions the client must take to pursue their goals. Our research shows that 67 percent of those with tech-forward advisors feel motivated, versus 31 percent of tech-averse advisors’ clients.4

3. Financial Confidence. The Financial Planning Standards Board’s Value of Financial Planning Index™ compares unadvised consumers, advised consumers, and consumers advised by a CFP® professional. One of the main benefits of financial planning that it highlights is financial confidence (71 percent of CFP® advised, 65 percent other advised, 60 percent unadvised).6

Our research shows 93 percent of advice seekers said “feeling confident in financial decisions” is a top benefit they desire from financial planning.1 With an advisor who can test various “what if” scenarios and map out what it would take to meet a goal, a client can gain the confidence to determine how to move forward in life.

Studies That Quantify the Value of Planning

Quantitative studies estimate that professional financial advice can add 3 percent to 4 percent to portfolio returns over the long term. Here, we’ll briefly touch on two of the most prominent ones.

Vanguard: Advisor Alpha

In 2022, Vanguard published its most recent version of Putting a Value on Your Value: Quantifying Vanguard Advisor’s Alpha. This in-depth resource names five main sources of value: behavioral coaching, spending strategy, asset location, cost-effective implementation, and rebalancing.7 The report concludes that “advisors can potentially add up to, or even exceed, 3 percent in net returns” on an annual basis through these domains.

Of the sources of value, the two most prominent are behavioral coaching and spending strategy. With much of financial planning centering around managing resources in ways that are expected to promote well-being, these two are within that area of expertise. CFP Board has also acknowledged that behavioral finance is important for the professionals who earn the CFP® marks, adding the psychology of financial planning as a principal knowledge topic on its exam in 2022.

Russell Investments: Value of an Advisor

Russell Investments’ 10th annual Value of an Advisor study outlines a formula for adding value through comprehensive advice. This includes active portfolio rebalancing, behavioral coaching, customized experience and family wealth planning, and tax-smart planning and investing.8

Using this formula, “the value of an advisor in the U.S. is approximately 5.12 percent” on an annual basis before subtracting fees, the study says. Again, planning and behavioral coaching are some of the most impactful ways advisors can add value.

A Strategic Approach

Many consumers want professional financial advice but hesitate because they find it difficult to quantify the value of financial planning.

This represents an opportunity for those advisors who relish the opportunity to explain planning’s benefits. If you can understand what your prospective client wants, you can further hone your messaging to position yourself as an essential partner in pursuing financial well-being.

To continue learning about how to communicate the value of planning, including three advisor personas centered around client benefits, read our eBook, Unlocking the Value of Financial Planning.

 

 

Sources:

1. eMoney 88 Million Consumer Research Study. April 2022. n=1,616.

2. The Cerulli Edge. “U.S. Advisor Edition,” January 2024.

3. Bain & Company Inc. “The Elements of Value,” September 2016.

4. eMoney Beyond the Plan Research Study, June 2023, n=1,507.

5. WealthStack and Wealth Management IQ. “2023 WealthStack Study,” November 2023.

6. Financial Planning Standards Board. “FPSB Value of Financial Planning,” September 2023.

7. Vanguard. “Putting a Value on Your Value: Quantifying Advisor’s Alpha,” August 2022.

8. Russell Investments. “Value of an Advisor,” May 2023.

 

DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.

 

Image of Monica Ruelas
About the Author

Monica Ruelas, Enterprise Sales Manager at eMoney, works closely with enterprise firms, helping them innovate their advisors’ business. Over the last decade at eMoney, Monica has held roles as an Inside Sales Manager and National Accounts Director. Over this time, she’s developed expertise assisting firms implementing wealth management software so their advisors can deliver more value to their clients.

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