Why I Started a Next Generation Financial Services Company

Today I’m proud to celebrate the public launch of Entelechy, a next generation financial services company. What started as a quest to determine how to make both financial planning and investment management more accessible and relevant has resulted in the creation of a new business, and I couldn’t be more excited.

But what exactly is a next generation financial services company? Why create one? And why give it this strange name?

You Deserve More

For too long, financial advisors, financial planners, investment managers, and financial software companies have focused almost exclusively on one question:

“How much do you have to invest?”

An important question to be sure, but one that has led to two unfortunate trends within the financial services industry:

  1. A typical fee structure based on assets under management and/or product sales that may or may not include some level of financial planning beyond investment advice; and
  2. A tendency for financial service companies to forget why we might want to help clients invest in the first place.  (Hint: It’s not so that we can charge them fees or generate commissions based on transactions or the sale of financial products.)

These trends have further resulted in a financial services landscape filled primarily with more traditional investment management firms charging 1% (or more) of assets under their management, newer software startups offering low-cost model portfolios, and commission based stockbrokers and product salespeople who for some reason are still allowed to call themselves financial advisors.

Some of these individuals, companies and service providers provide quality financial advice commensurate with their fees (and I am proud to have worked for one of these organizations before leaving to start this business), but the vast majority do not.

This isn’t OK.  And it isn’t something that’s going to change quickly based on consumer-driven forces, largely because consumers don’t know who they can trust, what services to expect, or how much they should reasonably pay someone for quality financial advice.  This is something that’s going to take an enormous amount of time and energy to change, and I consider the creation of Entelechy a step in the right direction.

A Better Fee Structure

Financial advisors that charge based on assets under their management alone may include some level of financial planning in their fee, but the extent and quality of that advice can vary wildly from advisor to advisor.  Even if financial planning is included in an advisor’s fee, those advisors typically must charge a higher percentage (e.g. 1% or more) to cover the cost of providing additional planning services beyond investment management in order to stay in business.  This limits the type of clients these advisors are willing and able to serve and leads to additional conflicts of interest.

Those who aren’t willing to pay a traditional advisor’s fees are left to fend for themselves, make use of a digital automated investment solution (with lower account minimums but without real financial planning), or work with an “advisor” compensated by commissions or product sales (who has a significant conflict of interest to make recommendations based on transactions that will result in the highest advisor compensation, rather than their client’s best interest).

Thanks to a few pioneering individuals and organizations like the XY Planning Network, the case is being made for fee structures that better align the interests of financial advisors with the interests of their clients.

The Secret Society of Real Financial Planners

Originally coined as a joke by fellow financial planner Carl Richards, the Secret Society of Real Financial Planners describes the (very) few financial advisors in the U.S. that are actually providing real financial planning to clients.  Often overlooked or lumped in with the rest of a financial services industry rife with conflicts of interest and bad behavior, these advisors are actually helping clients achieve life goals, are 100% transparent about their fees and potential conflicts of interest, and are qualified to be doing the work they claim they can do for you.

Financial product salespeople need not apply. And all too often, traditional advisors, investment managers and financial software companies claim to be providing real financial planning when in fact they are not.  Selling someone a financial product is not financial planning.  Likewise, charging someone an asset-based fee for investment management and little to nothing else is not financial planning.  When financial service providers are too focused on how much someone has to invest, the conversation is inevitably centered on investing alone, and investing is just one form of implementing a financial plan.

This is fine if you’re only looking for someone to manage your portfolio, so long as the fee is appropriate.  But for those who expect real financial planning (e.g. helping you purchase a house, optimize your cash flow, start a business, determine the most favorable withdrawal strategy in retirement, etc.), a financial services company that is focused on helping clients achieve life goals first and foremost, with investments being just one of many means to that end, is far more likely to help those clients succeed.

The Next Generation of Financial Planning

I will admit that I didn’t always believe in the power of financial planning.  Striving to learn more about personal finance after college, and after reading every book on the subject I could get my hands on, I was convinced the world didn’t need financial advisors any more.  With the wealth of information available to anyone with access to the Internet and the ability to open your own investment account with a discount brokerage firm in a matter of minutes, the idea of hiring a financial advisor seemed like a particularly antiquated practice.

Yet I was guilty of a common conflation: I equated financial planning with (basic) investment management.  It took several more years for me to realize the former is infinitely more complex and far-reaching than the latter, and that even then, there are more than enough good reasons to seek help managing your investments.  I now see a financial planner as a real human being whose job it is to help other, real human beings critically evaluate and set life goals, and to make better decisions regarding the resources that make up their personal wealth: time, human capital, & financial assets.  While a book or the Internet may provide me with plenty of possible answers to a particular financial question, it’s a (real) financial planner’s job to provide me the best possible answer based on my unique goals and circumstances.

Accordingly, I believe that the CFP® designation should be the minimum educational standard for financial planner professionals, and that everyone deserves access to honest, high quality and objective financial advice. I don’t believe that anyone should be allowed to offer services as a financial advisor or planner unless they are held to a fiduciary standard at all times, with no exceptions.

I created this business in order to put these values into practice. And while its name may be a challenge to pronounce, Entelechy epitomizes what you should expect of a financial planner and of the financial planning process: focused on making your dreams a reality and reaching your full potential.

It’s my hope that the next generation of financial planning firms look much more like this one.