Change Is Coming

November 01, 2017

I spend a lot of time talking to financial advisors about ETFs. It’s basically my job. And there’s no question that ETFs have been a great tool for most folks’ practices. But at the end of the day, they’re really just another piece of technology in the tool chest. When I stop talking and start listening, what I hear is mostly how much every advisor’s practice is changing. ETFs are a part of that change, but really just a small part. Here are the top three things I mostly hear about.

Generational Wealth Transfer
Depending on whose math you use, some $30 trillion in assets is going to be handed down from an aging—and let’s face it, dying—baby boomer population over the next few decades. That money’s already driving changes in the business.

The type of anecdote I tend to hear often goes like this: “Last week, I had my best clients—a retired couple with a substantial portfolio—show up to my annual thank-you dinner with their 45-year-old daughter. All of a sudden, I was selling myself all over again, after I’ve been providing great service for 20 years!”

These conversations are happening in wealth management shops all over the country, and how advisors handle them is the difference between keeping their book of business healthy or losing out to new technologies, new approaches or just new competitive advisory firms.

Planner? Or Asset Manager?
The traditional model of the fee-only advisor works on the assumption that the client pays an asset-based fee, year after year, and for that, gets not only management of those assets, but ongoing financial advice. It’s almost like the basis points are a retainer. Most days, you pay that fee just to know the advisor is on call.

Increasingly though, I hear rumblings about the need to either unbundle, becoming just an asset manager—either through separate accounts, model portfolios or starting your own ETFs—or to get even more inclusive, adding either staff or relationships with lawyers, CPAs and insurance agents to provide full-service planning. Both models work, of course, but neither is particularly easy for smaller firms, which have to do a little bit of everything. That means they can neither spend all of their time on money management, nor staff up to provide concierge-level services to their clients.

Beating—Or Joining—The Robo Revolution
An undercurrent of both of the previous two trends is that the price of basic asset allocation is rapidly collapsing, probably toward zero. There are already robo platforms with no headline fee, either as teaser rates or as part of a broader business model. Every advisor I’ve talked to this year has a specific plan:

Fight: Market nonportfolio services, or highlight what makes their portfolios better, more customized and potentially outperforming. Often this comes down to “just wait ’til the crash.”

Build: White-label one of several robo platforms where they can apply their own model portfolios to attract lower-dollar clients or millennials.

Assimilate: Turnkey asset management programs, as discussed earlier in this issue, offer a way for advisors to focus on relationships, and let someone else worry about the allocations. This model itself is in huge flux, as robo software has led to the middle ground of the “model marketplace,” where advisors choose third-party models to be implemented by software.

It almost doesn’t matter which approach you take, as long as you’re good at it. But in pretty much any scenario, the financial advisor business is changing.


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