Financial Planners & Investment Advisers
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Industry Overview
About 35,000 US companies with combined annual revenue of about $200 billion provide financial planning and investment advice to individuals and businesses. Large companies include Ameriprise Financial, Charles Schwab, and units of diversified financial services companies such as Morgan Stanley. The industry is concentrated: the 50 largest companies account for about half of revenue.
Globally, companies providing financial planning and investment advice have assets under management exceeding $50 trillion, according to the Boston Consulting Group. Top global firms include the asset management divisions of Dutch firm ING and French bank BNP Paribas.
Competitive Landscape
Demand is driven by consumer income and wealth and demographics. The profitability of individual firms depends largely on effective marketing. Large companies have some advantages in providing expertise in a wider range of investment options, and they may be able to charge lower fees. Small companies can compete successfully by providing better service and advice.
Products, Operations & Technology
The relationships between financial planners, investment advisers, and other professionals in the financial services industry are complex, and their roles often overlap. Financial planners help customers put together a plan to manage their financial resources; investment advisers suggest specific investments. A third of industry revenue for both investment advisers and financial planners comes from providing services to individuals. Financial planners help individuals form a plan that may include debt, asset, college, retirement, estate and tax planning, and may periodically check with the client to see how well the plan is being followed. Much of the planning revolves around an income and spending budget, with advice about the types of financial investments suitable for the client. Financial planners offer more comprehensive and detailed planning, often of a tax-sensitive nature, for wealthy individuals, and for organizations such as trusts, estates, and charitable foundations; planners also may recommend specific investments, in which case they function as investment advisers.
Investment advisers recommend specific investments, sometimes to individuals but most often to managers of investment funds such as mutual funds. Investment advice is usually based on research, which can be of many kinds. Many advisers develop methods of research and analysis that are unique to their firm. Large firms operate like brokerage houses, with large numbers of general-knowledge advisers backed by a research and support staff. Advisers may be paid a flat fee (typically much higher than for basic financial planning); a fee based on the size of the assets under management (from half a percent to 5 percent of assets); or a performance fee based on the success of the investment advice. In some cases, compensation is indirect, through commissions received from brokering investment transactions. Some advisers have authority to invest on their clients' behalf.
