Due to the rise of "robo advisors" and other digital platforms, retail investors have access to a broad range of relatively cheap and highly sophisticated third-party asset management offerings. So, while asset management will always be a component of any independent advisory practice, the day is fast upon us—if it hasn’t come already—when it can no longer be the principal focus.
For much of the industry, this sets up a series of important decisions on the horizon, with the central question being how to ensure survival and best avoid the fate of stock brokers from a bygone era by becoming extinct. On a very basic level, the answer is pretty simple: do more.
Of course, nearly every firm, on their website or in pitches to prospective clients, likes to describe themselves as "full-service" and based on past standards, they probably are. Historically, all this meant was providing clients access to a wide variety of investment options and establishing frequent communication.
But, given the trajectory of today’s marketplace, the notion of running a "full-service" firm is rapidly changing. And without making meaningful modifications, relatively few firms can plausibly describe themselves that way going forward. So, in the future, what will a "full-service" practice look like? In our view, firms will have to adapt in the following three ways:
1. Incorporate a multi-family office approach. Practices need to bring together, under one roof, a collection of experts that can address the full spectrum of client needs holistically and on a case-by-case basis. Beyond experienced and capable financial advisors, this means assembling a staff rounded out with accountants, estate and tax attorneys, insurance specialists, and other professionals who will strengthen a firm’s ability to deliver the most comprehensive wealth management experience possible.
2. Build a service model with an experienced advisor serving as the quarterback for the entire investment and financial planning process. Central to the success of any multi-family office is having a leader who can deftly manage the various members of his or her team—simultaneously acting as a client’s surrogate, sorting out and simplifying the complex and often difficult financial decisions they face. However you want to label this role—relationship manager, alpha advisor or something else—every team needs a clear leader. It’s a benefit to both the firm and the client.
3. Be a concierge service provider, not just a financial advisor. Exemplified most prominently by companies like Amazon and Uber, consumers now demand simpler, easier lives. They want to be able to open an app, tap a few buttons and get almost anything they want when they want it whether it’s a car or groceries. Independent financial advisors are not immune to this strengthening consumer trend.
More and more, firms will have to take on tasks that in the past have may have been an element of the family-office approach, but never been a part of the archetypal wealth management service model—including paying a client’s monthly bills, monitoring their credit score, safeguarding their identity, and even buying tickets to big sporting events or concerts.
The natural next step in this evolution will be acting as a client’s financial power of attorney, having the added responsibility of opening bank accounts or negotiating directly with lenders regarding a mortgage or car loan.
While the margins for such services will never be large, they have the potential to create ‘sticky’ relationships that will be difficult to sever. If firms are simplifying the lives of their clients significantly, it will likely take an act of professional incompetence to lose that relationship.
The consolidation of our industry has begun, and those who choose to ignore it risk becoming obsolete. Obviously, though, very few independent advisor businesses have the resources to build this type of operation from the ground up.
In these instances, don’t lose hope. There are many opportunities to seek alignment with large independent enterprises that either already have this support infrastructure in place or, having anticipated the ongoing changes transforming the industry, are well positioned to do so quickly.
Steven Dudash is the president of IHT Wealth Management, an LPL-affiliated Super OSJ based in Chicago that collectively manages approximately $1.8 billion.