Demand from high net worth clients -- particularly those who are business owners -- is driving a shift in the financial services industry to a comprehensive, multidiscipline approach. The most savvy financial advisors are capitalizing on this movement. The results of an effectively run multidiscipline practice include more satisfied clients who generate more consistent referrals and improved profitability. In addition, these practices find it easier to attract younger advisors, helping to manage the challenges of succession. However, research suggests that less than 20 percent of investors have a multidiscipline relationship with their advisor despite their desire for one. This leaves plenty of room for growth. Every advisor should consider how to deliver more holistic services to their clients. This will help position their practices for long-term, profitable success.The benefits and challenges of this trend are discussed in detail in "Multidiscipline Practices: The Business Model of the Future - Today," a white paper based on a survey of more than 1,000 investors, another survey of about 500 independent financial advisors and interviews with five owners of multidiscipline practices. The research was conducted by the Aite Group, an independent research firm, and commissioned by NFP Advisor Services Group. For the purposes of this research, multidiscipline practices were defined as practices deriving at least 10-15 percent (depending on product type) of revenues from each of the following products: insurance, investments, benefits and fee-based financial planning services.
Total Package Increases Client Satisfaction
Clients of multidiscipline practices expressed significantly higher levels of satisfaction than other clients. Almost half (49 percent) of multidiscipline practice clients, versus 32 percent of other clients, said they were "very satisfied" with their advisor's service (See Exhibit A).
The satisfaction advantage for multidiscipline practices was largest when comparing multidiscipline clients with others on the survey criteria shown below in Exhibit B.
In addition, multidiscipline practice clients expressed greater satisfaction across the remaining three criteria included in the satisfaction section of the investor questionnaire. When advisors broaden their understanding of their clients' goals, they can serve clients better and clients trust them more. As one founder of a multidiscipline practice said, "If you are talking to someone about an estate planning strategy, you can state with confidence how it will affect their lifestyle in retirement. This comprehensive approach allows us to eliminate many common client objections to working with us, because we truly understand all of their needs."
Given the higher levels of client satisfaction, you might wonder why there aren't more multidiscipline practices. However, the growth of these practices is a phenomenon of the last decade. The original model was pioneered by insurance broker/dealers. Now advisors who have gone independent are taking the model to the next level. This new level of independence means advisors aren't limited to proprietary products, making it easier for them to serve their clients' best interests. Open architecture is an essential component of today's multidiscipline practice.
The Great Recession also contributed to this shift. On one hand, it drove clients to seek refuge from stock market volatility in the security of guaranteed income products from insurers. On the other hand, as advisor revenues from single lines of business faltered, this spurred advisors to stop relying solely on investments or other business lines.
This shift toward multidiscipline practices fits well with younger clients and advisors. Both have grown up accustomed to getting all of their needs met in one spot. The multidiscipline practice evolution is likely to accelerate as the influence of the next generation spreads, making it essential to advisory practices' business development, client retention and succession planning.
Advisor Benefits: Better Referrals And Client Growth
Multidiscipline practices typically have higher rates of referrals and client growth, according to our advisor survey. In addition, our investor survey suggested that, as a whole, the clients of multidiscipline practices have more desirable profiles.
Close to half (45 percent) of multidiscipline practices generated at least one-quarter of their 2011 revenues from internal partners. Less than 30 percent of other practices achieved this standard. We believe that multidiscipline practices have an advantage because both internal and external referral sources prefer to limit the number of referral partners they work with to a smaller, trusted group who can meet all or most of their client needs. Client growth rates for multidiscipline practices exceeded those of other practices (see Exhibit C).