Financial advisors are seeking greener pastures that offer the ability to achieve something better for themselves and their clients.
The wealth management industry is experiencing a constant evolution in which new models to better serve clients seem to be born daily. But the ongoing expansion has yet to keep up with the frenetic rate of change in the mindsets of clients, advisors and the firms they work for.
The reality is that each stakeholder in the wealth management ecosystem has developed an insatiable appetite to attain “more” from one another.
It’s a phenomenon that starts at the top of the food chain with clients who are looking to their advisors for more in the way of service; to advisors who are looking to their firms to satisfy their clients’ increasing needs as well as their own; and to firms who want more from their advisors to improve their bottom line.
Yet it’s the advisors (particularly those who work with high net worth clients) who are being pushed from both sides – with pressure to do “more” mounting from both clients and the firms they work for – and, as such, are leading the charge of change.
Good just isn’t good enough
An increasing number of advisors have come to recognize that the limitations inherent in a large firm are preventing them from fulfilling their clients’ needs—as well as their own ability to achieve excellence. And with a world of alternatives available to them, advisors are feeling that “good enough” just isn’t cutting it anymore.
As $5B UBS breakaway-turned-independent-business-owner Rob Sechan put it, “The big firms seem to manage to the lowest common denominator—and that does not always foster an environment of ‘client first.’ Because when you have a very large advisor population, you do have to, in some ways, protect the firm.”
So as firms tighten the reigns, even those advisors who are comfortable financially and growing rapidly feel the pull towards something “better” for both their businesses and their clients.
What advisors want
As the mindset of advisors is rapidly evolving to keep pace with changing client demands and overall industry dynamics, they are prioritizing certain key areas—and they may opt to disrupt the status quo to acquire them:
- Innovative service offerings—To fend off commoditization by providing a deeper level of services beyond products and investments, and to help coordinate a client’s entire financial life, including tax advisory and preparation, estate planning and lifestyle services.
- Unique branding and scalable digital communications—With the freedom to create a brand and website that is synonymous with the advisor’s service model, firm culture, and target clients, plus innovative ways to communicate with clients via social media and text.
- Bespoke investment products—Including direct private investments and difficult-to-access managers, as well as the ability to advise on crypto.
- Customized technology—To offer a client-centered experience and capitalize on the latest fintech innovations.
- Ownership and enterprise value—Including optionality for inorganic growth and succession.
- “True” fiduciary responsibility and freedom—To do what an advisor feels is best for clients and overall business outcomes.
What clients want
There is a basic foundation of what clients expect from their advisors—and it should go without saying that trustworthiness, competency, responsiveness and mutual respect are at the top of the list. Yet clients are looking to their advisors to go beyond the realm of investing and planning to provide a more advice-driven relationship that extends to additional services, including:
- Unlimited access—To alternative investments, tax preparation, banking, lending, insurance, and a host of other bespoke services that fall under the category of one-stop shopping and total lifestyle management.
- Greater flexibility—In how they are charged, such as flat fee, subscription-based pricing, planning retainers and AUM-based fees.
- A “modern” experience—With “anytime-anywhere” access to accounts and reports.
This change in client needs presents a tremendous opportunity for advisors, but for those who work in the big brokerage firms, it’s often one that’s lost.
As one breakaway advisor shared, “Clients were asking for things that we just couldn’t get or deliver from inside the wirehouse. And more conversations than not ended with us having to say, ‘Sorry, we are restricted from doing that.’”
It’s a trend that’s driven entrepreneurial wirehouse advisors who became frustrated by the limitations in serving their affluent clients toward independence, and fueled the growth of a new breed of Multi-Family Offices like Rockefeller Capital Management and Rob Sechan’s NewEdge Wealth.
What firms want
When it comes to big brokerage firms, there is a certain reality that advisors need to be aware of. As Rich Mullen of $1.75B+ Pallas Capital Advisors said in a recent podcast episode, “Firms have clients, investors, advisors and shareholders. It’s nearly impossible to have all of these parties lined up perfectly on the same side of the coin. So, the focus really is on the firm’s risk and profit.” It’s this balance between risk management and profitability that becomes a powerful force—particularly within an organization managing thousands.
So as firms look at improving their bottom line, there are several key areas of focus:
- Banking and lending—Which are strong drivers of profitability.
- Standardization of businesses—Managing to the “lowest common denominator” provides scalability and sound risk management.
- Seeking more profitability from advisors—Using compensation plan changes to incentivize behavior via the “carrot and stick” approach.
- Retention measures—Such as Protocol withdrawal, “ownership” of clients, and even retire-in-place programs to stem attrition.
- Disintermediation of the advisor causing channel conflicts—By adding call centers for smaller relationships, salary- and bonus-based private bankers at the upper end of the market and digital offerings.
Undoubtedly, these firms provide an environment that more than successfully hosts some of the top advisors in the country, but for others, the focus on corporate profit comes at too high a cost.
The drive towards “greener pastures”
To be sure, most advisors are well-served by their firms—where they and their clients are comfortable and thriving in a plug-and-play environment. But there’s another growing contingent of advisors who see where the puck is heading—and who are intrigued by the ways in which many of their colleagues are innovating to keep up with the changing demands of their clients.
Yet it’s when advisors feel they can no longer keep up with client demands, fear commoditization and envision a future that’s grander than the status quo that they seek greener pastures.
For some, this means starting an independent practice where they can create their own brand, serve clients precisely how they want to be served and introduce new services. While for others, it may mean finding an employee model firm whose vision for how advisors should run their practice and serve clients is well-aligned with their own.
As expectations change, so does the delicate balance of serving the needs of all three key stakeholders. Advisors have recognized this and are taking on the task of realigning their goals with those of their clients, instead of their firms, and seeking something better. It’s a shift that’s resulted in more movement and growth than we’ve seen in a decade—and which we expect to only continue into the years to come.
A condensed version of this article was published on Barron’s Advisor…