Advisors are told again and again, at conferences, from their vendor partners and (perhaps too often) in the pages of publications like this one, that they need to do something. You need to reach out to the next generation of investors. You need to reach out to the next generation of financial advisors. You need to reach out to female investors and advisors. You need to create a more diverse client base or a more diverse advisory team.
I’ll let you off the hook; you don’t need to do anything.
The advice to “diversify” an advisory practice – whether that is along age, gender or ethnic lines – is good advice if you want to create a sustainable business, one that is poised to grow and flourish, or a business that has some inherent value to it that could be, at some point in the future, monetized via a sale or succession.
But my instinct is that many advisors aren’t particularly interested in creating a sustainable business, at least, not sustainable beyond their own professional lifespans – and I’m not sure there is anything wrong with that. They worked hard early on to build a book of business – not an easy thing to do – and are at a point where they are pretty comfortable and content.
There is an interesting statistic we recently heard from TD Ameritrade Institutional head Tom Nally: 90 percent of financial advisors already have more than 50 percent of their clients in “decumulation” mode; that’s money being pulled out of the practice (and off the custodians’ platforms) as clients spend down their accounts in retirement.
I’ve never met a financial advisor that would turn down a qualified client in the interest of keeping their practices homogenous. But we know that the average financial advisor is not too far from being in the “decumulation” stage themselves, and most seem to be content to ride off into the sunset alongside their current clients.
For many of these older advisors with “lifestyle” practices, it may not only be unrealistic to expect them to diversify along next generation lines; it may not even be the right thing to do, if it means detracting from the service they are giving their current clients.
It’s the custodians or broker/dealers who are most concerned about advisors making their practices “sustainable” – because that keeps the assets on the vendor’s platform. Michael Kitces has suggested this is part of a wider fiduciary conflict that advisors have with their custodians. The motivations are different; custodians implore advisors to wrestle with the notion of next-gen clients and next-gen advisors. Advisors, at least many of them, should probably be focused more on ensuring the clients they already have are getting the best service and advice they can get.
The good news here is the opportunity for those advisors who do want to grow their practices. For these advisors, there is plenty of open space serving communities that have been largely overlooked by the financial services industry. Consider the Chicago-based advisor Franco La Marca, profiled in this issue, who has built a thriving practice simply be understanding the unique needs of the community he serves: In this case, LGBT couples looking to start a family.
As the distribution of wealth diversifies, so does the need for advice and planning. Advisors who create and grow businesses that better reflect the demographics of the country will be the advisors that thrive in the future.
But that won’t be all advisors. Vendors might be better off explaining the opportunities in diversity and putting resources toward growing the ranks of younger advisors who can take advantage of the trends, instead of chastising all advisors for not changing up their practices.