It almost goes without saying that 2009 will mark a sea of change in the financial advisor space. The business of providing advice to clients - whether you choose to actively participate in the design process or to simply respond after the fact - will look materially different by year-end.
The accelerated evolution of the financial advisory business was set in motion by volatile market action and expanding regulatory intervention and ultimately will be defined by a change in client behavior. While there is much we don't know about how the financial services industry will look long-term, in the near-term we can acknowledge that client expectations have changed. Ultimately the client decides whether the services provided by an advisory firm are still relevant to warrant the fees charged.
Market action, the Madoff effect and irrelevant, inflammatory who-is-to-blame statements from elected officials and pundits serves to undermine client confidence. The affluent and emerging affluent client is questioning the wisdom of their (and their advisors') investment strategy - and importantly, the exchange of value provided by their advisor. That skepticism, appropriately, then flows throughout the industry value chain where experienced successful advisors are actively pondering the value of their relationship with industry service providers including broker/dealers, RIAs, clearing firms and custodians.
Faced with changing client expectations, each component of the industry value chain should be rethinking their strategy, beginning with a reality check in terms of whether the services they provide are still relevant. For the advisor, the value of the practice is impacted by everyday strategic and tactical financial decisions, which in turn affect the markets served and your industry partners that work to support the chosen strategies. As the owner/manager of a business, you make decisions based upon a set of known facts and the circumstances at the time. The complicating factor at present is that the known facts are less certain and discernable as consistency among client behavioral trends prove elusive.
This is the time when an advisor should have a crystal clear understanding of client-service offerings and which clients are profitable, as well as how to create operational efficiencies to grow the business. This is of paramount importance. Armed with that data, the successful advisor can move forward with known facts pertaining to their business in an effort to reaffirm or modify their business strategy. Knowledge of how the best managed, highest margin, growing financial advisory practices outperform average firms (and how your firm compares) is key.
The best managed, highest margin, fastest growing advisory firms have a number of common characteristics. Chief among these traits is a practice of focusing available time, talent, and resources on a limited number of core activities, then outsourcing the remainder.
The areas these top performing firms focus on are the activities which help differentiate the firm from the competition. Each advisory firm, through internal capabilities or through outsourcing, provides a defined services offering such as investment planning, advanced planning, or perhaps comprehensive life planning. The key is to be clear about what role you and your associates play in the overall wealth management process, and which roles are more efficiently delivered through an outsource or partner model. Partnering or outsourcing non-client-facing activities to an industry partner, such as a broker/dealer or RIA, when properly structured, provides a competitive edge for advisors.
As a business owner, the impact the markets have or will have on your business is one of the most pressing issues. In as much as your revenue is tied to assets under management, you may already be facing difficult times in terms of how to move forward to grow your firm. The good news is that you have direct control of your personal brand equity and the client service experience you deliver to your clients. With regard to market conditions, this is not amateur hour. This is the time when your years of professional experience, judgment and reassuring advice to clients should be valued most. Properly positioned with a future-oriented business model, this is your time.
Matthew E. Lynch is president and CEO of Capital Analysts Incorporated, a Cincinnati-based broker/dealer and registered investment advisor. Capital Analysts Incorporated is a member of Western & Southern Financial Group, a Fortune 500 company.
