By Mike Gertsema, CEO & Wealth Advisor
Raise your hand if you remember the 1985 movie, “Back to the Future.”
If you don’t remember it, here’s a recap:
Michael J. Fox (Marty McFly) and Christopher Lloyd (Dr. Emmett “Doc” Brown) lived in a small town in California. They were thrown back into the ’50s when an experiment by the eccentric Doc Brown went awry and Marty McFly traveled through time in a modified DeLorean car.
Marty found himself traveling back in time by 30 years to the year 1955.
There’s a scene where Marty was trying to figure out what happened and what was going on when he found a newspaper that had the date 1955 on it. Then, he looked up to see an old model car drive into a gas station. You heard a bell ring as the car drove in and a group of guys came running out to pump the gas, check the tires’ air pressure, check the oil and wash the windows.
He was in complete shock because in 1985 that wasn’t anywhere near normal.
Although I was not alive yet in 1955, I remember experiencing that type of service when I grew up in southern Minnesota. The same service was around in the small town I grew up in. The owner of the gas station was generally the person that did a lot of the work and came out to pump the gas.
As I reflect on those days, I truly appreciate the full service because those guys taught me a lot about my vehicle. They:
- Explained what it meant when tires were out of alignment and what it took to fix it.
- Pointed out if the tires were wearing uneven, I’d be purchasing new tires sooner than later, which was an attention-getter.
- Showed me how to check the oil, look for oil leaks, the wear on the belts and hoses, and what to look for in preventative maintenance
- Made sure the antifreeze level wasn’t low – it’s a big deal in Minnesota because a frozen engine block could be a ruined engine. You had to have enough antifreeze in your radiator to avoid everything freezing up when it got 20 below zero (brr).
- Showed me how to check my air filter and explain how inexpensive it was to replace and the benefits of keeping it cleaned
- And, more!
I was able to obtain all this information and service for the cost of purchasing gas. If you think about it, I received a lot of value when purchasing gas at that gas station.
Fast forward 35 years later from the Back to the Future scene and the term “full service” isn’t anywhere near what it meant back then. Nowadays, we pump our own gas, wash the window ourselves, check the oil, the tires and the radiator ourselves too.
So, what does full service mean today in a gas station? I think today it’s the store items inside from fast food to beverages.
A lot of gas stations have transformed themselves into a self-serve grocery store/fast food restaurant/ gas station/rest stop/convenience store. I guess we call this progress. Plus, I don’t know if anyone would have the patience in this fast-paced society to wait for someone to provide full service on their vehicle?
But, what about the financial services and brokerage service industries?
Full-Service Brokerage Firms
I’ve worked a great share of my career in the brokerage service industry and most firms advertise themselves as full-service brokerage firms.
When I worked for the full-service brokerage firms, we were taught to tout our investment experience – offering an array of investment options from stocks, bonds, government bonds, corporate bonds, municipal bonds, mutual funds, annuities, limited partnership, etc. The list goes on.
The industry takes great pride in its proprietary research and its ability to provide investment advice and design investment strategies.
Most of the full-service firms provide their firm’s brokers with research and investment analysis to help them guide their clients in constructing a diversified portfolio. They have a great focus on which different investments to sell and consequently earn profits from the products they sell.
Full-service firms tend to charge commissions and fees for the services provided. However, some firms are moving away from commissions and charging annual fees in lieu of the commissions to stay competitive or they are reducing commissions charged to the customer.
The growth of the discount brokers over the last 20 years is forcing the original big-name brokerage firms to change their business model or continue losing market share to the discount brokers (examples: Charles Schwab, Fidelity, TD Ameritrade, E-trade, etc.).
The discount brokerage firms are commoditizing the investment industry and, in a sense, making it more like purchasing a commodity like gasoline for your vehicle.
With the zero charge commissions, why pay a commission at the full-service brokerage firm to buy a stock, bond, mutual fund, exchange-traded fund (ETF), or any investment product for that matter?
The large full-service brokers are selling their commodity (investment advice) and wanting you to go inside their store to purchase other products off the shelves. They will advise you on what product to buy and charge a fee for the product you want to purchase or the level of service you want.
The reason the discount brokerage firms are growing is they are helping the Independent Registered Investment Advisors (RIA) grow – which enables them to offer customers more value than just investment advice and truly offer full service.
I think full service is coming back to the future…just in its own way.
Full-Service Financial Services
The independent advisors are offering the full-service financial planning advice not just limited to the investment advice with state-of-the-art technology, specialization and experience.
Since the big-name brokerage firms are going to change their fee structure, the question many have is: “what am I getting for the fee that I’m paying?”
If it’s investment advice – which is getting commoditized – ask yourself what other services the firm provides that brings value to the relationship. Some clients are looking for more value for the fee they are getting charged.
The consumer is looking for the full-service gas station of the past – much like my experience was back in the ’60s where I was getting advice, preventative maintenance tips, and additional knowledge about my vehicle.
Today’s customers (you) need to stay updated with investing, risk management, tax planning opportunities, protection planning, and estate planning.
For example:
- If your portfolio is over-inflated or under-inflated with risk, it will impact your total plan.
- Maybe your investments are out of line with your goals and risk tolerance.
- Maintaining a vehicle is an ongoing process, your financial plan and portfolio are as well.
- And more!
Checking the oil, the belts, and hoses is like making sure you’re taking into consideration your income taxes, income tax brackets and income tax strategies.
It’s not a one-time event, it’s an ongoing process that is going to change as you change, your needs change and the laws change.
What Does Full-Service Financial Planning Look Like?
So, back to my opening question, what does full service really mean?
With the advancement of technology, experience and education in the financial services industry – companies can give the consumers much more value and full service for the amount they are currently paying a broker for their proprietary research and their investment advice.
Investment advice without knowing risk tolerance, financial goals, income needs, income tax brackets, income tax law changes and estate planning considerations can be dangerous.
Because of this, finding an advisor that will work with your CPA and Attorney is essential to pursuing success.
If you’re interested in full service and a team that values educating you as you fix your finance vehicle, let’s set up a complimentary consultation.
