The New Normal for Advisors…

May 17, 2018

The New Normal for Advisors

Recently, I was fortunate enough to be a panelist for “The New Normal:  Managing Client Expectations” at the Financial Planning Association’s annual retreat (#FPARetreat2018). I was thrilled with insight from the other panelists, the great questions from the moderator, and especially the engaged audience who were there to learn, innovate and grow in their respective practices.  Today I’m sharing a review of the topics and ideas that were brought up during our discussion. I think it will help you think about your own innovations, or at least how the “new normal” will affect you.

The fiduciary movement is here to stay

One of the first topics was about why the industry is evolving, and of course regulations was on everyone’s list. The DOL rule is still technically in effect but we all agreed it’s on life support. Still, our panel feels the fiduciary cat is out of the bag. The DOL has publicized the meaning of “fiduciary”, the SEC is now rolling out a best-interest standard, and we have already seen other countries like Australia and the UK implement their own models. To me one of the bigger, less-discussed signs that a change is coming is the states that are creating their own versions. Think about it, if you are an advisor in Pennsylvania and you, like many advisors, have clients in places like Nevada or Maryland, you may be subject to enforcement on fiduciary or fiduciary-like rules in those states.

The new normal means that you will have to be more cognizant of a growing list of regulations and compliance requirements that eat into your time and profitably. You’ll also need to be able to explain how you interact with clients going forward. The publicity is spurring clients to ask advisors if they are fiduciaries, or if they are obligated to put the clients’ best interest first. Saying, “No, I am not obligated” is not the right answer.

Moving from advisor-driven to client-driven planning

The client’s journey in financial planning is changing. We are moving from large binder financial plans to co-planning; from quarterly, semi-annual or even annual meetings to micro moments. Advisors are leveraging technologies in a way where the CRM is the client hub, but financial planning tools are the value hub of the business. The traditional six-step planning process is still the standard, but it is being implemented differently with help of technology, and adapting to client needs and preferences. Some of the changes are:

  • The plan is a living document and is updated real-time
  • Technology makes client fact finding and reporting easier and is driven by the client, not the advisor
  • Ongoing planning, it can be broken into modules and spread over time.
  • Different types of clients require different planning modules, different planning focus, and maybe different planning software
  • The client is a “co-creator” of the plan

The new normal is a client more involved in the planning process. Your client is seeking value in the relationship and is willing to pay for advice, but the advice has to be relevant, personalized and immediate. Technology allows you to customize the delivery of advice while mechanizing the office to do it in a scalable, profitable way and with less chance of errors. Workflows and integration win the day.

Is fee compression real?

Yes, it is. And it’s happening to every advisor in the business. Many will argue that they are not feeling the effects yet. Their clients are not asking about fees or complaining, but I suggest that the changing client is making the advisor work harder, add more services, and increase the scope of their business thus decreasing the net revenue of the firm. I argue that the decreasing net has been masked by a higher equity market over the years (higher gross revenue.) Advisors will soon be forced to reckon with a demand for more services without a corresponding raise in fees. That is fee compression.

The new normal will be for advisors to get bigger by getting smaller. Focus, or niche, practices will be the norm. Generalist financial planners will not be able to charge 1% fees to provide simple advice. The generalist will compete with robo- or virtual advisors. They will compete with Google or free financial calculators. A specialist or niche advisor can command a premium fee for real, timely and personalized advice. Innovative firms are creating their niche, creating services and planning around that niche and marketing the heck out of it.

Retail in 2018

In my subsequent breakout session at the conference, I presented our new paper “The Next Wave of Advice Management.”  I started with a story about the effects of the relatively sudden sea change in retail. Growing up in small town Illinois, I had a choice between the 1 or 2 items available in the local store’s inventory. Now I – and all consumers – expect hundreds of choices that can be shipped free and arrive in two days or less. The change in expectations – and the inability or disinterest in meeting them – is what has taken down so many traditional retail names.  The advisory business is not immune.  Instead of being forced to pick from a handful of advisors in a town, consumers are now able to work with anyone that they choose no matter the distance.

Because of retail – and many others –I look at businesses for signs that it is innovating, changing or improving. From your local coffee shop to advice, there is a consumer expectation of customizable options. Is your firm creating a personal, customized co-planning expertise for every client?  Because that is going to be expected of you.    If you are, is your back office efficient, profitable and error free? The new normal is here, what are you doing about it?

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John Anderson

John Anderson

John Anderson is the creator and lead author of Practically Speaking blog and Managing Director of Practice Management Solutions for the SEI Advisor Network.

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