Читать книгу The Enduring Advisory Firm - Mark C. Tibergien - Страница 7

Back in the day when individual investors were buying stocks and bonds instead of packaged solutions like mutual funds and ETFs, there was an investment analyst Mark knew in Seattle who was locally famous for his contrarian bets. His inclination was to look at companies currently out of favor with the investing public; assess their management, their culture, and their market; then take a long view of their business to determine whether it was an opportunity worth owning.

The stockbrokers who worked for this particular firm adored the man, whom we will call “Conan the Contrarian,” because his reverse approach always made them look good with their clients. Today, whenever we hear some industry pundit spout conventional wisdom, we try to channel Conan. We find it helpful to ask, “What would Conan do?” whenever we see our profession fleeing from or toward an idea.

Among the beliefs most often repeated are:

● Advisors are reducing their fees.

● Young employees lack a work ethic.

● Robos/digital platforms will make it difficult for advisors to compete.

● The industry will benefit from a huge generational transfer of wealth.

There are many more, of course, but we examine these questions in light of the facts and the reality on the ground. No doubt, our opinions will stir the ire of some but that’s exactly what Conan would do – cause people to challenge convention, then act with the wisdom they’ve gained from the analysis.

Advisors Are Reducing Their Fees

While there are a number of advisors who claim to be experiencing some fee compression, we have found that the top-performing advisory firms have actually increased their fees in each bracket of client. Much has been written about fee compression in the industry but we struggle to find signs of such a trend. In fact, in 2010, the yield on AUM (revenue divided by AUM) was 78 basis points, compared to 77 in a 2014 study and 75 in the 2015 study.1

It appears those firms most under pressure are the ones whose value proposition is tied to investment performance. There are also some wealth management firms who have had more difficult conversations in the past year with clients who are experiencing percentage returns of less than 5 percent.

Those who have raised their fees claim they have had very little attrition because they have been able to demonstrate value beyond the investing relationship and even beyond the basics of financial planning. They may be giving their clients unique access to private banking or alternative investments, or they are creating a community of clients in which others want to be part.

As we have learned from observing other industries that have been commoditized (for example, coffee, retail grocery, medicine, tax accounting), those who can command a premium are those who can deliver a premium experience and who are perceived to be offering more value.

Young Employees Lack a Work Ethic

It is a curious claim among industry elders that it is a challenge to find young people who work as hard as they do. Having interacted with thousands of advisors over our careers, we would agree that advisors born in the Baby Boom era tend to value motion over movement and equate time in the office with hard work. But the amount one perspires is not a measure of perseverance.

Gen X, Y, and now Z employees seem to eschew the illusion of industriousness created by their forerunners as they seek more balance in their life to pursue other interests and devote time to their important relationships. They consistently ask their bosses to evaluate them on output, not input. This is a very difficult mindset for founders of advisory firms whose blood, sweat, and tears created their practices and resulted in the advisory business as we know it today.

Over the past couple of years, we have observed a number of advisory firms transferring to the next generation with little fanfare and minimal disruption. Firms that seem to be growing the fastest according to surveys done by Investment News2 and FA Insight3 have been investing in better hiring, retention, and development programs to ensure business continuity and stronger growth.

Fortunately, many business leaders in this industry will acknowledge that the old way of managing through carrot and stick may not be as effective as creating opportunities for personal growth, recognizing that the desire for employees to have a life outside work, investing in their career development, and rewarding fairly does pay off. The challenge is that such a systematic approach requires more disciplined management, which frankly, is not the job that most advisors aspired to when they formed their own practices.

Robos Will Make It Difficult to Compete

Every decade presents new obstacles and new challenges for financial services. Mark started in this business in the 1970s just before the disappearance of fixed rate commissions. Since then, we’ve also seen a number of other disruptors.

Off the top of our heads, we think of the RIA custody model, the self-directed platforms, the emergence of ETFs and index mutual funds, rebalancing software, and account aggregation as examples of ideas that caused disruption to different segments of the business. At Pershing alone, which is the largest securities clearing firm in the United States and a division of the largest custodian in the world (BNY Mellon), we have seen advisory assets grow from 5 percent of our total in 2007 to more than 50 percent today.

Furthermore, we have seen regulatory reform influence how many conduct business in the United States as well as overseas. In the United Kingdom, for example, with the introduction of the retail distribution review (RDR), platforms may no longer obtain reimbursements from the fund companies for whom they provide access to advisors and their clients. This has forced a new economic relationship between all the parties, but has also created greater transparency in costs and deliverables. In Australia, the Future of Financial Advice (FOFA)4 requires advisors to tell their clients what they can expect to pay in actual dollars for the services to be rendered in the coming year. Now that these financial professionals cannot hide the charges clients are charged, they have to do more to demonstrate value.

The point is that robo-advisors – or digital platforms – are just another step that automates what was a manual and labor-intensive experience. Using algorithms, their model portfolios may even be able to outperform the strategies that human advisors deploy. But this is not the only reason why individual clients choose to work with a financial professional.

The complexity of a person’s life – especially the wealthier they are – requires judgment and insight. What clients want is an easier way to access these points of view along with a simpler way to conduct business. For most advisors, leveraging technology to deliver the best of robo combined with the best of humans will likely be the model for advisory firms. Of course, the pure technology plays will get their share of business just as the self-directed platforms at places like Schwab, TD Ameritrade, and Fidelity have. The challenge and the opportunity for advisors is not to concede that ground to those investing so much in competitive solutions, but rather partner with providers who can enhance the client experience while at the same time keeping the advisor at the core of the relationship.

The Profession Will Benefit from the Pending Transfer of Wealth

Depending on what you read, you will find there is upward of $40 trillion of wealth in the United States alone that is expected to go from the Baby Boomer generation to their children and grandchildren.5 As a result, pundits are urging advisory firms to create a process for capturing this asset movement by positioning their firms properly in the minds of the inheritors and their benefactors.

While money in motion can be great for those prepared to be in the middle of it, the reality is that most of this wealth will be distributed in fractions to their beneficiaries. And not all of the beneficiaries will be the offspring of the rich folk. Much of this will go to charities and other causes the creators of wealth hold dear. Bill Gates (Microsoft) and Mark Zuckerberg (Facebook) are great leading examples of people who want to make an impact with their legacy. Their kids will also see a large inheritance upon the death of their parents, of course, but the point is that what is left over will be distributed in much smaller chunks.

Furthermore, the suggestion that advisors should be on a death watch waiting for their Baby Boomer clients to croak is insulting to younger prospective clients. The greatest amount of wealth creation will come from the efforts of Gen X, Y, and Z directly. We are seeing great examples of innovation and consequently wealth accumulation that has little to do with being born with a silver spoon.

So the opportunity for growth from inheritance is a very dark strategy when one considers the opportunity for growth from betting on the next generation of wealth accumulators. A balanced approach seems to be the best strategy.

While skepticism about conventional wisdom is healthy, your wariness will prove useless if you don’t take a constructive approach to what you perceive as threats. Being a professional naysayer adds little value to business decisions.

Granted, there are many other examples of conventional wisdom that deserve challenge. They at least deserve to be questioned as we observe a profession that is going through one of its most profound changes in decades. Advisory firms of the future, however, will not be replicating each other’s business strategies, but will be challenging convention, deciding based on facts, and finding cracks in the market that will result in big openings to do more business.