Scalability. Profit pressures. Self-directed investing. Increased use of mobile applications. According to the Aite Group, these are some of the trends to watch in the financial advisor industry in coming months.
In a report that takes a comprehensive look at the industry, Aite says it expects consolidation to continue along the lines of recent deals such as Raymond James' acquisition of Morgan Keegan, LPL Financial's purchase of Fortigent, and Cetera Financial's pickup of the broker-dealer subsidiary of Genworth Financial.
"In times when profitability is more than ever linked to the scale of an operation and to a business environment in which organic growth is difficult to achieve, acquisitions are the fastest way to improve a firm's competitive positioning," says the report from Aite, a Boston-based independent research and advisory firm. "Firms that already have a strong position will be able to strike deals. As the case of Securities America has shown-the firm was recently sold by Ameriprise to Ladenburg Thalmann-private equity firms will also be active acquirers in 2012."
Aite foresees that firms seeking profit growth will make a greater push into wealth management services, which are more stable than other businesses such as investment banking. Firms are also trying to find ways to make their businesses more profitable by outsourcing certain operations, technology platforms and product areas. Turnkey asset management programs, for example, offer a new product area without a lot of up-front costs.
Aite says firms are focusing on technology by using third-party companies' pre-integrated tech platforms which can be customized to their needs. One example is Citi's OpenWealth product. Also, larger firms are offering mobile device applications that provide investors with direct access to their accounts. That trend will continue and have a direct bearing on the profitability of the advisors, Aite says.
"Adjusting costs to the new market conditions and increasing operational efficiency, while at the same time implementing required changes that allow the firm to compete effectively in a much-changed market environment, will most certainly put the current technology and operations setup at many firms in question," says Alois Pirker, an author on the report.
More wealth management firms will be experimenting with Web-based communications technology to deliver information to clients more frequently and cost effectively.
At the same time, more online trading platforms will be offered by traditional brokerage houses to compete with existing online brokerage firms. But most investors will still want advice, even if they are doing online trading, which is good news for financial advisors.
Business models themselves will also be changing, with more brokerage firms transitioning to asset-based fee business and wealth management firms paying advisors more evenly across product types using a uniform or level commission schedule, predicts Sophie Schmitt, a report author.
There will be opportunities in retirement planning, but advisors need to sharpen their retirement advice, particularly for clients with $100,000 to $250,000 in investable assets. Aite predicts advisors will have more retirement-age clients who intend to continue working and that 40% of retirees will work at least part time.