The Future of Investment Advice

The modern broker-dealer structure was created in the aftermath of the Crash of 1929, as the Securities Exchange Act of 1934 set forth new rules and registration requirements for the financial intermediaries that either were dealers in securities from their own investment inventory, or brokered securities transactions for their clients (including in subsequent decades the distribution of securities products, like mutual funds).  Yet by 1/1/2018, the traditional broker-dealer business model is under threat from the rollout of the Department of Labor’s fiduciary rule, which at best will likely reduce upfront commissions and drive a shift towards more levelized compensation for advisors. Unlike some of our competitors, BDFS will be offering the Best Interest Contract as we believe there are circumstances where commission based products are very appropriate for retirement accounts.  A world without commissions is not necessarily death for advisors, the reality is that the non-commissioned RIA segment of advisors has already been experiencing the greatest growth in recent years, and even the majority of brokers have indicated that they think it is reasonable to be required to give advice in the best interests of their clients.  The ongoing evolutionary shift of “financial advisors” from securities product salespeople to actual advisors is creating a crisis for some broker-dealers – after all, in a future fiduciary world where advisors are paid directly by their clients for advice, what is the purpose or need for a broker dealer intermediary at all?

At BDFS/IAC, we are positioning you to survive and thrive by providing tools, resources and business and revenue models to remain relevant for your clients of all ages.  We know you rely on us as your financial intermediary business partner to provide the blue print for building your practice of the future through support platforms that help you achieve success while getting  paid for helping your clients with quality financial advice.  We believe in supporting the Hybrid Advisor Model which is defined as an Advisor that can both provide commission services through a broker/dealer while choosing to leverage a corporate RIA or establish an independent RIA firm that they own, brand and operate for all their fee-based business.

Preparing for Succession

Studies show the average age of an advisor’s end client is 59 and they control 69% of the assets held in a typical practice.  To continue to grow, increase your practice’s value, and prepare your firm for succession it is more important than ever to plan how to broaden your client base.  Too many advisors are looking the other way – potentially missing out on a significant growth opportunity.  Only 16% of advisors report they are in routine contact with the adult children of their clients and see the clients’ children as an opportunity, per the Independent Advisor Outlook Study.  Given that an increasing number of Baby Boomers clients are entering retirement every day it is more important than ever to start cultivating relations with the next generation of your clients.

 Who is the Client of the Future?

Generation X-ers are categorized as resourceful individuals and employees that have a think-on-their feet approach who have been raised in an era of tech and social change, and thrive on flexible work-life balance.  Millennials, graduated into a strong economy, have been marked by previous generations for appreciating work-life flexibility, take pride in their work, are optimistic, have been told they can do anything they want and have the need to feel heard and valued.  The growing desire for advice may be advisers’ greatest opportunity for retirement and retirement-income planning and debt management for the next generation of investors.  Clients are fairly uniform in what makes an adviser “the one” for them, however the most important referral is from a family member or friend and the characteristic they value most is the “ability to translate personal needs into a strategy.”

I have commonly heard people say, “Millennials do not have any money” implying they are irrelevant to our investment world.  However, 70 percent of millennials expect to receive an inheritance in the next 10-15 years.  Further, research shows  the under-35 set may need to question their assumptions about retirement and how to fund it: “Millennials say they plan to quit working at age 59, on average, a full six years earlier than Baby Boomers, who expect to retire at age 65,” according to  Millennials pride themselves in believing in the experience.  Relationships will be a key driver of the RIA differentiation for the next generation of investors.  It will be critical that everyone within your practice knows and understands the need for a more meaningful way to connect with the next generation of investors at every point of interaction to your practice’s value proposition.  In the future, clients of every category expect to enjoy significantly increased online engagement, from scheduling meetings to transferring funds, paying bills and signing and sending secured documents.  This is why BDFS/IAC has invested so much in My Advisor Toolbox technology for your practice and your clients.

What are the Best Practices?

While the type of advice and the delivery of services to individuals has and will continue to change, the demand for personal financial advice and one-on-one advisory services has the potential to increase significantly over the next five years.  Research finds:

  1.  Clients want expanded service models.  Investors of all age groups say they want a full-service relationship, with access to financial planning, investment, insurance and  tax and estate advice from a single source.  If the experts aren’t in your office, we can help you team up with allied professionals.
  2. Clients want account access from anywhere, at any time.  Overall, 83.8% of investors use a smartphone, including 69.3% of investors over the age of 65.  In the fourth quarter we will be offering an aggregated client portal for your clients through CircleBlack.  We are even researching the possibility of Alexa, Siri or other voice control mechanisms that the next generation investors may use to get account performance updates during their daily routines.
  3. Clients want you to help them save.  They are seeking your help to saving for retirement and want you to help them budget.
  4. Fees are increasingly tied to services provided given the evolution toward advice and away from sales.   More and more advisors are considering charging retainers (even monthly retainers that are easy to budget for millennials) and project fees, making their compensation model more aligned with consultants rather than brokers or money managers.
  5. To find new clients, go where they are and that means LinkedIn, Facebook and Twitter.

Your ongoing challenge is the ability to translate your client’s personal needs into a strategy and to create a practice worthy of succession as you start thinking about your own retirement.  We look forward to sharing a lot more about preparing for the future of financial advice with you at the IGNITE Annual Advisor Conference on July 27 – 28th!

Lisa Smith, President and CEO Investment Advisors Corp