He said independent advisors have gained a significant number of high-net-worth households in a short period of time-from holding 13% of wealthy household assets in 1998 to more than 27% in 2002.
"There is enormous opportunity and tremendous wealth out there," Roame said. Investable assets will only increase as baby boomers pass through their peak earning years and what he likes to call their subsequent "liquefaction years." Tiburon coined the phrase "liquefaction" to describe how boomers will sell assets, such as homes and businesses, and transfer retirement plans, thereby putting into play essentially billions of potential investment dollars.
But to truly capitalize on these changes, advisors will have to work smarter than ever before, the consultant says. The way to do that? "Have one business model and kick the living daylights out of it," Roame says. Unfortunately, according to Tiburon's research, only 41% of independent firms even have a business plan.
The "wrong answer" business plan is: "I serve a smattering of everyone," Roame says. The size of clients' portfolios really matters when it comes to building a profitable firm. As independent reps and advisors increase total firm revenues, they create a practice that serves bigger but fewer clients. That point is illustrated by the findings of Tiburon's surveys.
At smaller independent shops with total annual revenues of up to $249,000, 30% of clients have less than $100,000. Only 28% have $1 million or more to invest. That's in sharp contrast to firms with $750,000 to $999,000 in annual revenues. At these firms, 49% of clients have $1 million or more to invest and only 13% have less than $100,000.
Why does it matter? The size of your firm and asset level of your clients dictates your per-client revenues. Small firms generate average total revenues of just $703 per client, per year, Roame explained, while larger firms generate an average of $3,641 per client, per year, essentially for the same amount of work.
"It's important to increase investable asset levels and identify the source of assets," Roame says. What he's found on the latter score is a real eye-opener. Advisors are already reporting that 44% of their new-client assets come from retirement plan rollovers, but few do anything to actively court the market.
"Everyone has an IRA rollover marketing campaign, right?" Roame asked, almost rhetorically, since none of the symposium attendees raised their hands. "IRAs will define your industry every year, so it's time to get a campaign," the consultant preached.
Boomers alone will transfer $201 billion in retirement assets to IRAs this year and that number will climb every year until it hits $467 billion in 2010, according to Tiburon. Those numbers almost by themselves make it a good time to be just about any kind of financial advisor, provided you target the rollover market, Roame maintains.
If advisors are failures when it comes to actively going after IRA rollovers, they're absolute ninnies about soliciting new clients. Tiburon finds that most firms are overly dependent on the happenstance of client word-of-mouth. More than 43% of all new advisor assets come from passive referrals, making it the No. 1 source of new money, he said. In contrast, only 11% of new assets come from proactive client referrals. "We hear you never ask for referrals," Roame told planners at the symposium. "Your business is built on them, and competition may cause passive referrals, your main source of new assets, to slow down."