How is the market changing, and what does it mean to a firm’s long-term viability?
What options are available to provide continuity for clients, employees and owners?
What is my firm really worth, and how can I maximize its value?
Why will scale become critical in the future, and would I be better off building scale in-house or finding the right partner to accelerate that process?
Advisors can clearly build their business their way, but what does the future hold? Independent advisors will face several strategic issues over the next decade, including: Increasing competition from regional and national independent advisory firms in their local markets. New and upcoming providers such as online RIAs that will likely compete on price and deliver value-added technology that smaller advisors may not possess. Financial providers from other verticals looking to enter the wealth management space. Margin compression if economies of scale are not realized. Business continuity and succession planning. Difficulty in realizing the equity value of their business. Uncertainty around future compliance and the regulatory construct.
The myriad of challenges and uncertainty may put advisory firms in a difficult position. Do they want to continue to focus on each of the key elements in running their business – sales and relationships, wealth management and investments, and business management? As advisors and their top clients continue to age, how should key elements such as business continuity and wealth transfer be facilitated?
Once an advisor reaches the top of the mountain, there is only one way to go. How can advisors avoid reaching the top of the mountain and hitting a plateau where they stop growing – or even worse, decline?
Are advisors better off trying to simply manage their business as an executive? Should they focus on just keeping their best clients and create a sort of declining annuity for themselves in the process?
The evolving industry landscape is fraught with opportunity and risk. Should they make material investments in their business to spur the next iteration of growth? Or would they be better served by finding the right strategic partner to help them achieve their long-term priorities?
The answer is, there is no right answer. Advisors must first understand what changes lie ahead in the future and build a sound plan that meets those dynamics head-on and likewise meets their personal and professional preferences.
Regardless of your approach, the importance of client age within a book of business can’t be understated. Would an advisor rather have a book of clients with a concentration of younger clients that are adding wealth, or a book of clients about to draw down their investments due to their retirement years?
Given the preferences of younger investors, would they hire their parents’ advisor, seek out a different advisor or choose to hire a different kind of partner altogether? Today we are witnessing an unprecedented transfer of wealth from the the greatest generation to baby boomers and baby boomers to the millennials. Are you currently on the sidelines watching this happen? Or are you directly in the path of this incredible wave of opportunity?
What does it take to be successful today and relevant tomorrow?
- Wealth management and investment management: The ability for advisory firms to develop capabilities to serve the needs of clients. This includes traditional investment management services, but also includes wealth management services such as financial planning, tax planning, estate planning and cash management, among others.
- Sales and client experience: Building a value proposition that will help drive the firm’s growth trajectory. The ability for the advisory firm to deliver client service and support, drive client satisfaction and referrals, and deliver desired outcomes for clients. The sales process and the subsequent client experience will likely become the single largest differentiator in the industry as functions, such as investment management and planning become increasingly commoditized.
- Business and practice management: Many advisory firms are composed of great advisory professionals, but not all are great business managers. In fact, many advisors learned the competency over time.
A key question advisors should ask is “can I build deep competency in all facets of my business, or would I be better served finding a strategic partner to help?” The reality may be most advisory firms do not have the willingness or the ability to build, maintain and evolve all areas of their business.
In many cases, the advisory firm will plateau and will be stuck trying to find new ways to grow. In the meantime, all Advisors should be keenly aware that their best clients are the number one target of their competitors. Trees with deep roots stand firm and weather the storms and provide shelter for new growth. An Advisor must seek to deepen the roots of their client relationships, and in doing so become part of the client’s root system which attracts new growth as a natural byproduct.
Developing new capabilities and enhancing the client experience are essential to your success and future growth. The first step is to identify those capabilities you need and to define the client experience you are looking to create. Next you have to ask yourself, “Do I want to build it, buy it or acquire it through strategic partnership?
Take Estate Planning as a new potential capability. Preserving the client’s control over their affairs, while creating the roadmap for their ultimate exit strategy is one way to describe the function of estate planning. A seasoned sailor keeps his hand on the tiller, but also charts and plots the course for the autopilot to take over, just in case he loses manual control of the tiller.
Some Advisors have gained experience in counseling clients on the benefits and need for effective estate planning. Others seek that knowledge and experience and often ignore the topic or refer their clients out until that expertise is attained. In both scenarios, the Advisor can only take their client to the water’s edge. They cannot create the estate plan, they can only impart the ideas and importance of doing so. In the traditional climate, they must ultimately refer their client out and hope for the best.
That transition is a clear expression of a service the Advisor cannot directly provide. But what if you could? Not directly of course, unless you are a licensed attorney. But what if, by partnering with the right strategic partner, you could offer your client estate planning services beyond the water’s edge, save your client’s money in the process and ensure the personalized service you would expect to receive from a higher cost provider? How might this deepen the roots of your relationships and create enhanced client experiences?