FA: I was interested earlier that you said you see advisory firms responding to these external conditions and these changing demographics, but do you really think that they are responding sufficiently and that they’ve given sufficient thought to some of the trends that you are talking about. If they have given thought to it—are they responding in the proper way or what should they be doing?

Hathi: I don’t know if I would say they are, as a category, responding sufficiently. I think for every firm, just like for every person, there is a different trigger. And what I think has been interesting is that—back to the previous conversation—it has been when we’ve seen an advisory firm, a founder-led advisory firm, bring in someone new who looks at everything and says, “What are we doing? We’ve got to get up to date!”

So sometimes, that is the trigger. Sometimes we’ve seen the trigger be some sort of merger or something like that. In other cases, we’ve seen a fraud activity or kind of an attempted fraud attempt be a trigger. If someone had a client who had their e-mail hacked, all of a sudden they really get interested in how do we create more security. Someone sent out a statement, and it got into the wrong hands, and, OK, now I want to do electronic delivery. Or I lost this employee and now all of a sudden I don’t have anyone who is going to do the daily recon and so now I want to outsource that.

I don’t think that as a category they are sufficient adjustments, but there are more. One proof point I look at is the electronic authorizations we launched this summer. It didn’t even get out to all of our clients until August, and we’ve seen such a great uptick right away.

That’s a different way of doing business for clients. It requires them to now all of a sudden maintain e-mail addresses and mobile phone numbers for their clients and have those stored on Schwab’s systems and make sure they are accurate. And educating their clients is different—it is a lot of work for an advisory firm to get their head around this and then implement it.

But advisors are clearly seeing the benefits because they are doing it; it seems like that pace has gotten faster. It is proof points like electronic authorizations that suggests to us that things are moving along.

FA: I see your point, but electronic deposit is low-hanging fruit because there has been a demand for it. It just hasn’t been supplied. What about new technologies like the robo-platform Schwab is releasing? Have advisors thought sufficiently about it and strategically about it? Because you know as well as I do, historically most advisors don’t think strategically about their suite of technology products.

Hathi: It seems like they are. There is a platform need out there and that is what we are going to deliver. We are delivering a platform, but the bigger challenge for an advisory firm is to figure out, “How do I think about this relative to my business strategy?”

If my business strategy is to serve a $2 million household and I have a number of accounts that are actually $250K accounts, do I think of this new platform as an accommodation for those small accounts? Then how would I place that? How do I think about what my service offering is for that type of a client on that offering versus my other offering?

There are all of these practice management-type decisions that firms need to start thinking about, and I agree with you. … I don’t think that they’ve thought sufficiently about it. I think there is kind of this, “Well, when we have the technology we’ll figure it out” mentality—but what this sometimes misses is technology in some ways is the easy part.

The harder part is figuring out how to structure your business and your people and your resources in a way that you actually—you are optimizing against your business goals. That has much more to do with your pricing model, your service model and your relationship model.

Just a year ago, no one was even thinking about this at all.

FA: A few were.

Hathi: I would say most of our clients didn’t think about it at all, but they are now. I know just based on the interest that we’ve seen around the platform that we are going to be introducing. Advisors are thinking, “Yeah, that might be a great way for me to grow my business or create some scale in my business.”

FA: What are the biggest challenges to your typical firm and in 2015? What are the couple of things that they should be thinking about the most seriously and the most immediately?

Hathi: Before the financial crisis, the biggest challenge was around talent. It was human capital. That hasn’t changed. I think the added complexity now for many firms is diversity in talent. You don’t just hire the person that looks just like the person you had, whether it is gender, race, age, whatever. You need to diversify.

A lot of small firms are not sure how to go about doing it. I’ve been in many conversations where advisors ask:

What is step one? What do I do? Do I go out to the university? OK, but I don’t want someone that junior … so how do I find the woman that has some experience and who could be a great relationship manager to come in and bring business? How do I find that person?

So I think the talent—the human capital—challenge is a huge one, and I think the firms that are honest with themselves about what they have internally and how they are positioned will probably put some discipline in place with regards to how they search for talent.
One of the things we’ve been talking about is whether we can give some best practices to firms around searching for talent. When you are looking at the list of the candidates, do you specifically look for diversity in those candidates? And most firms will say no. I just look at their resume and I see who is the best person based on the things below the name.

FA: OK.

Hathi: One of the things we say to them is if you are trying to build diversity, then that is a criteria you have to be looking at. I mean, it is not an issue of I want to elevate this group over another group. One of your business objectives is that you need your firm to represent the population you are trying to serve. And if you don’t have enough women or you don’t have enough people of color or whatever it is you need, you better be looking for that. And that doesn’t mean you should compromise your standards. That means you are selecting based on the things that you need to achieve.

I think talent is going to be big because the job market is hot and it is going to be hard for folks, if they don’t have the right culture, to retain people.

In one of our surveys that we did last year, one of the data points was that most people who joined an RIA actually came from another RIA. So you know people are going to move across RIAs, but what we need is for talent to come into the industry.

FA: Any thoughts on how to achieve that?

Hathi: I think that is a big challenge.

We have our intern programs at universities. We do a bunch of stuff, but it is clear that as an industry, we have to find a way to do more because there is just this huge gap with regards to this being even on the consideration map for a lot of folks who could be great at it.

FA: There are so many other industries where there is a glut of people, and we have a tremendous shortage of qualified people. We would have more if the public knew there were job opportunities.

Hathi: Right. One of the things is that there is very low awareness as to what the jobs really are, and I think there is this question, “What does a financial planner really do?” This is especially true from a women and girls’ perspective. … There is this perception that it is a job where you are sitting behind a computer screen and you are doing spreadsheets all day.

And that is so not the job! Actually, this job is really great for a well-balanced person, because it requires a lot of relationship skills as well as a lot of analytical skills.

FA: Any other challenges?

Hathi: I think you already touched on the other one with the robo-advice.

I think advisors need to think about the business strategy. There are going to be changes in pricing structures and the way people think about it—so getting your head around what your firm’s distinct value proposition is, what your pricing structure is, and how it compares with online models will be important. There will always be a need for the high-end wealth manager, but they are going to have to be really distinct and really descriptive about what their value proposition is. Perhaps some firms haven’t spent as much time on this as would be helpful to them in the long run.

And then, because we are so busy building all of these capabilities, we think, OK, the pace of change from a technology and infrastructure standpoint for us is so fast that you look at some of these firms and you say, “How are they going to keep up with the pace of change?”

I think it circles back to talent. If you have the right people, then you will be more likely to be able to keep up, but some of the firms really haven’t. There are lots of firms that still are not using CRM systems. They are still sometimes even using Excel for rebalancing or sometimes even for portfolio management. You look at that and you wonder how that firm is going to make it in the long run. 


 

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