A modest AUM tax could make
financial planning available
to all American families.
By John E. Grable
Avast number of Americans are not guided by planners. What if there were a way to offer planning to all seg- ments of society without a noticeable
decrease in revenues or profits within the profession? Here is a modest but serious proposal for
making that happen:
• A Financial Planning Service Insurance Fund
would be created, financed by advisory firms.
• An Office of Financial Planning Reimbursement would be established. It would allocate assets to the states based on revenue generation
and distribute planner reimbursements based on
an insurance claims model.
• Approved planners would be reimbursed on
a flat or sliding scale with a maximum cap of, say,
$25 per hour.
A major question, of course, involves how
such a plan would be financed. It would be nice
if all firms would participate voluntarily in funding such an insurance program, but that’s naïve.
More likely, a regulatory body would be needed
to mandate binding contributions to an insurance
pool. The good news is that, on an individual basis, the annual contribution would be modest.
The simplest funding mechanism would be to
place a levy on managed wealth, in the form of an
AUM tax. In 2012, financial planners and associated advisors managed $43.8 trillion in household
wealth. A flat-tax equivalent to 1 cent for every
$10,000 in AUM would generate $43.8 million annually. A binding contribution of this magnitude is probably less than the total labor value
associated with pro bono efforts currently under way nationwide.
Here’s how this could work, using the state of Georgia, where I teach,
as an example: Financial planning firms here generate about 1.5% of the
total AUM revenue in the U.S. Under this proposal, Georgia would be
entitled to $657,000. After paying, say, $20,000 to help offset the Office of Financial Planning Reimbursement operating budget, approved
planners in Georgia could have access to $637,000 in total reimbursements for the year. This works out to more than 25,000 hours of billable
time at a reimbursement rate of $25 per hour.
Obviously, $25 an hour does not provide enough income to support
a large planning practice. It does, however, provide a base level of income for those interested in providing financial planning. counseling or
some life planning solutions as an aspect of a more expansive practice.
The reimbursement pool also offers a platform for new advisors
to build a practice that includes middle- and low-income households. In Georgia, even a modest financial planning insurance pool
of less than $750,000 would allow hundreds of advisors to reach out
to underserved markets. Those markets are indeed underserved, but
not undeserving. FP
John E. Grable, Ph.D. and CFP, is a professor of family and consumer
sciences at the University of Georgia.
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