Innovative financial advisory services have emerged in the last several years. Investors and traditional advisors should be aware of the advantages and disadvantages of online-only services. NerdWallet Advisors emphasizes its low cost, but potential conflicts of interest should be considered.
We all hear about the growing wave of Americans transitioning into retirement and the need for financial planning among Baby Boomers and older members of Gen X. But there’s emerging wealth among younger generations, too.
Following the pandemic, it was actually those under 40 who experienced the greatest percentage change in net worth amid a tight employment market and gains in the stock market. Not surprisingly, remote financial advice has grown in popularity. Teaming with a Certified Financial Planner (CFP) can now be done in person or online.
Introducing NerdWallet Advisors
A new service caters to the younger crowd, and it’s a household name for those who have ever searched for personal finance help online. NerdWallet Advisors is the investment advisory arm of NerdWallet Advisory LLC, a Registered Investment Adviser (RIA).
NerdWallet Advisors offers personalized financial planning services to clients through a subscription-based model. According to its Form CRS (PDF), clients pay a fixed monthly, quarterly, bi-annual, or annual fee, which can go up to $1,100 annually. As of March 4, 2024, the NerdWallet Advisors website advertises its services offered at $49/month or $499/year.
With no asset minimum and being advice-only, the services provided focus on various financial aspects, including budgeting, debt management, saving, retirement, insurance, and achieving short and long-term financial goals.
“NerdWallet Advisors does not offer ongoing monitoring of clients’ financial circumstances or goals unless explicitly requested. That concerns me since young individuals and families are often confused about where to even begin getting their financial lives organized.”
– Mike Zaccardi, CFA
Here’s a quick rundown of how it all works:
1. The User Provides Personal Details
Step one works a bit like how you might go about getting paired with a therapist online, only it’s about money. The individual shares their financial information and an overview of their savings goals, both big and small, as well as their budget. Investment experience and risk tolerance questions are asked, along with probing about retirement and life planning concerns. Geared toward the younger crowd, debt management is a focus too.
2. They Connect with an Advisor
The service then pairs the user with a CFP professional and schedules a 45-minute one-on-one introductory meeting.
3. An Initial Virtual Meeting Followed by the Plan’s Construction
The first call gets into more detail about the client’s financial situation, goals, and any other specific questions. Afterward, the advisor crafts a personalized financial action plan that will be available on the client’s dashboard. Specific action items are listed online, along with checkboxes for the client to complete. On the dashboard, the client can chat with the advisor for more minor money matters that come up, such as which employee benefits to elect.
4. Ongoing Plan Management
Here’s where clients may run into a stumbling block. Unlike with a traditional financial advisor, there is no annual review meeting or set of scheduled follow-up appointments. The site pitches ongoing assistance, but there could be confusion about recurring planning responsibilities. A key facet of a sound financial plan is its maintenance, so this is an important possible risk that individuals must consider.
A Lack of Ongoing Assistance: Will Clients Get Left Behind?
My day job often involves helping RIAs get their message out to prospective clients. Personalized financial advice and planning services can be highly valuable for both clients with a high net worth and those with a small asset base, but also “HENRYs“, whose income is significant and expected to grow.
What troubles me about NerdWallet Advisors is that it operates on a “point in time” model, meaning it provides financial planning services at specific instances based on client needs and requests.
NerdWallet Advisors does not offer ongoing monitoring of clients’ financial circumstances or goals unless explicitly requested. That concerns me since young individuals and families are often confused about where to even begin getting their financial lives organized. Putting the responsibility on the client to know when and how to reach out is a potentially risky proposition, though the service model may work for certain segments of the population. Still, for folks who know where they need help, then CFP professionals at NerdWallet could be an effective, cost-friendly solution.
“NerdWallet Advisors emphasizes its commitment to acting in the best interest of clients while acknowledging these conflicts, but can the RIA arm of NerdWallet truly act first and foremost for the clients they serve?”
– Mike Zaccardi, CFA
A Host of Conflicts
The firm discloses possible conflicts of interest, such as receiving membership fees, referrals to NerdWallet or its affiliates, and relationships with third-party service providers. NerdWallet Advisors emphasizes its commitment to acting in the best interest of clients while acknowledging these conflicts, but can the RIA arm of NerdWallet truly act first and foremost for the clients they serve?
Let’s weigh some of the pros and cons so that other industry practitioners have a sense of how NerdWallet Advisors fits in the financial planning field.
The company’s advisors are described as salaried employees or contractors who may receive benefits, and in some cases, restricted stock units of NerdWallet (ticker: NRDS), the publicly-traded parent company of NerdWallet Advisors. This compensation structure may pose a fiduciary challenge. On that note, its Form CRS does not mention acting as a fiduciary for its clients, though it does state that advisors have to act in the best interests of clients, which is effectively the same capacity.
Let’s run through three key potential conflicts of interest.
1. Revenue Generation
NerdWallet Advisors charges membership fees for its financial planning services. The firm acknowledges that it receives revenue based on these fees, so a potential conflict may arise since there is an incentive for the company’s advisors to encourage clients to subscribe to NerdWallet’s services. Its advisors are eligible to receive stock in NerdWallet – one of the largest advertisers of financial products in the U.S.
2. Membership Fee and Referrals to NerdWallet
I am also wary about the low $49 monthly fee – while the costs are transparent, it’s difficult to see how the financial planning arm is profitable. My concern is that the advisory service may act as a loss leader, with the ultimate money-maker being increased revenue generation through its parent company.
In fact, its Form CRS states that advisors “may refer you to content or marketplaces related to different financial products and services that are hosted by our parent company, NerdWallet.” NerdWallet Advisors claims that its advisors have no incentive to sell a specific financial product and that the client’s interest is “top priority,” but this is, at the very least, a squishy area, especially given the benefits its advisors may receive in the form of restricted stock units in NerdWallet.
3. Relationship with Third-Party Providers
The firm may also refer clients to unaffiliated third-party service providers. If NerdWallet or its affiliates maintain business relationships with these companies, such relationships are disclosed. However, this introduces a potential conflict if there are financial ties between NerdWallet and third-party providers.
A Bold Claim
Bigger picture, the NerdWallet Advisors website asserts that its advisory service is generally superior compared to those of traditional financial advisors, including that NerdWallet Advisors offers ongoing support.
As detailed earlier, though, that support is based on the client being proactive. Moreover, since its advisors may benefit from affiliate income received by NerdWallet, making the case that the company’s financial planning services are better than other CFP professionals is questionable.
A Flawed Fee Model
Another risk? In my view, there’s a mismatch between the ongoing fee model and the advice services rendered, given the “point in time” construct. How do they justify charging periodic fees, a la a subscription model, when there are no actual defined ongoing services? I could foresee clients signing up, getting their plan, and then forgetting about it, like so many other online subscription accounts, all while paying the retainer charge.
I would feel more comfortable if NerdWallet Advisors offered an hourly fee model, or better yet, one-time, based on the scope of the financial plan. Consider this: What if the client indeed never follows up? I presume that the periodic fee would still apply. If so, how is that acting in the client’s best interest? Furthermore, NerdWallet Advisors reserves the right to change its fees, including increasing the membership cost, with a 30-day notice.
The Appeal of NerdWallet Advisors
While there are many issues, NerdWallet Advisors offers a low-cost financial planning service that could be particularly beneficial for young people seeking an affordable advice-only solution. Since there are no asset minimums, a slice of the population may find the platform appealing compared to larger RIA firms. The online medium is another plus for busy young workers seeking straight-to-the-point guidance.
NerdWallet’s existing tools could be useful for the budgeting and personal finance segments of the planning process, as well. Furthermore, having a CFP professional on hand at all times is practical when minor money issues arise. Finally, so long as its users are aware of the fee model, the costs are generally transparent, though they could increase over time. Prospective users must carefully weigh all the pros and cons to determine if the platform aligns with their financial planning needs and expectations.
The Bottom Line
NerdWallet Advisors’ advice-only financial planning services target individuals and families among younger generations. It’s kind of like the opposite of robo-advisors – there’s no asset management, but there is a human to connect with.
NerdWallet Advisors’ advice-only, subscription fee-based model has possible flaws concerning conflicts of interest, and traditional RIAs can differentiate themselves from it by emphasizing the value of ongoing support and financial plan management.
About the Author
Mike Zaccardi, CFA®
Mike is a freelance writer for financial advisors and investment firms. He’s a CFA® charterholder and Chartered Market Technician®, and has passed the coursework for the Certified Financial Planner program.
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