5 Things Advisors Don't Understand

While at Wealth/Stack 2019, we asked a number of financial advisors the same question:

What is one thing about your business you don't feel the industry pays enough attention to?

The answers varied widely. Respondents hailed from around the country (and some even outside the U.S.), with assets under management ranging from less than $1 million to $600 million. Some were decades-old asset management stalwarts, while others were just starting out with a Netflix-style subscription model for financial advice. Here are some of the best answers.

ESG Investing Can Improve Client Discipline, Net New Referrals
Bair Financial Planning
Headquarters: San Diego, California
Assets under management (AUM): $70 million
Percentage of assets in ETFs: 33%

Victor Orozco, managing partner/director of operations:

A lot of our industry assumes ESG [environmental, social and governance] investing isn't really an issue, because it isn't something clients are asking for. But nobody asked for a multifactor international ETF, yet somehow that finds its way into portfolios.

We’re in fact getting more and more questions from clients about ESG issues. When clients reach out to you and ask, "Do I have private prisons in my portfolio? Or gun manufacturers?" and you're able to tell them no, it's amazing how engaged they get, and how happy they become with their portfolio. They may not even know if the portfolio is up or down, but they get excited knowing they don't have those stocks in their portfolio.

If clients can have their most sensitive part of their life—their money—integrated with their values, then they feel like they're heard. And they're less likely to want to get out quickly, because they're more emotionally tied to their portfolio.

Nobody gets excited talking about their multifactor international ETF. But when they find out they have a fund that's looking at gender equality or LGBTQ issues—whatever theme is important to them—they talk about that to their friends, their family, their colleagues.

Growth For Growth's Sake Is Self-Destructive
Mitlin Financial
Headquarters: Hauppauge, New York
AUM: $55 million
Percentage of AUM in ETFs: 45-50%

Larry Sprung, president/founder:

As a smaller firm, we're looking at how best to grow. Everybody is in this rush to scale and get larger very quickly. We're trying to discern whether we should be thinking along those same lines, or whether we'd be able to survive long term as a stand-alone.

Many firms are making their decisions about this based on what the industry as a whole is doing, without really sitting down and investigating if that's the right way to grow. They're jumping to just get bigger quickly, and not necessarily taking the time to do the research. You have to make sure you're not just growing for the sake of growing. You have to be thoughtful and strategic.

It’s Tough Making Money By Serving Younger Clients
Lundeen Abrams Advisors
Headquarters: Minnetonka, Minnesota
AUM: $18 million
Percentage of AUM in ETFs: >50%

Suzanne Abrams, president:

There's a real dearth in service for younger people. The industry is really motivated by AUM, and younger people don't have the AUM that makes anybody want to work with them.

I know there's new energy around creating flat-fee-based plans for young people, but it's really difficult. That's one of the hardest things—taking care of younger people but not being paid very well for it. It's not an easy problem to solve with the way the existing paradigm is.

Diversity Is Still Just Lip Service
Deane Financial Partners
Headquarters: New York, New York
AUM: $1 million, plus subscription plan revenue
Percentage of AUM in ETFs: >90%

Samuel Deane, founder/CEO:

I felt overwhelmed walking into this conference and being one of four black men out of the 600 advisors who are here. It's tough to deal with. There's a lot of pressure.

I don't think it's the industry's fault, per se, but I think it stems from a lack of general knowledge of what we do and who we are. When you think of a financial advisor, you think of somebody who's just selling stock on Wall Street. We do far more than that. So, just being visible and showing other people that we're here and that we deserve to be here.

As a black male, I feel we have the responsibility of pulling our community with us, and I think that's something my community really values, and everybody tries their best to accomplish.

New Tech Won’t Lower Most Advisor Fees

Accuvest Global Advisors
Headquarters: Walnut Creek, California
AUM: $450 million
Percentage of AUM in ETFs: 70%

David Garff, president:

A lot of advisors are getting disintermediated, and they don't even know it. Vanguard offers portfolio construction for nothing. Betterment offers portfolio construction for nothing, and rebalancing and taxes. So what do you really have as an advisor? Behavioral coaching and the client relationship.

So as you turn this into a technology experience and not a human experience, you're enabling the very people who are trying disintermediate you.

If you ask advisors, "How many of you really seriously think a robo is going to take money away from your business?" maybe 15% will say yes. The other 85% will say, "Nah, I'm fine. I might not grow as fast. I'm concerned about it. But …" [shrug] Just look at the fact that advisor fees are still the same, even after this robo “revolution.” If advisors were panicking, they'd be bringing their fees down. That would be the first thing they’d do.

The average advisor is, what, 68, 70 years old? Whether the client stays or not in the next five years is not really relevant to them. They don't really care. If you start losing clients because your fees are too high, then you'll just maintain your margin on a smaller number of clients. I don't think there's a real movement afoot of 70-year-old advisors who are going to say, "Danggunnit, I used to charge 100 basis points; I need to charge 50 now."

Ten years from now, though, the average fee will be lower, and the average age of the advisor will be lower, and that will be the thing that drags fees down.

Contact Lara Crigger at [email protected]