The financial advisory business has historically been a very profitable one. Managing money for investors—especially wealthy investors—has consistently been financially rewarding for advisors and their firms. While the financial advisory business has always been good, strong indications show that the potential for success will increase—possibly exponentially—under a Trump administration. His choices for cabinet members and his proposed policies are going to very likely create an environment where financial advisors concentrating on building a clientele of affluent investors will be able to excel.

For those financial advisors who are well positioned, have a solid business model, and are highly systematic when it comes to business development, the creation of meaningfully more private wealth under a Trump administration translates into more assets under management, more fees, more profit and more income.

More Private Wealth
Forget the Illuminati or the Templars, the Trump cabinet is a clear example of a plutocracy. There have never been as many billionaires or as wealthy a cabinet in history. And Trump is a billionaire. These individuals are intent in carrying out Trump’s policies, which entail eliminating many regulations.

When a large percentage of these regulations are eliminated, it will likely enable small and midsize businesses to be more successful. This, in turn, will likely make the owners of these businesses more affluent. The proposed cabinet appointees would also give support to a booming wealth management business. Given their backgrounds and personal wealth, they are likely to be positively disposed to the financial services industry.

The biggest and most immediate driver of greater private wealth will come from the tax cuts. The proposed income tax cuts on the wealthy will put more money into their hands. A percentage of these funds will likely end up being managed by talented financial advisors. As most self-made millionaires are business owners, lowering the corporate tax rates will also give them additional funds. While some business owners will end up reinvesting these monies in the firms, it is highly probable that many other successful business owners will hand their tax savings over to financial advisors to invest.

If the estate tax is eliminated, then a cohort of ultra-wealthy families will likely be on course to creating financial dynasties. Capable financial advisors can help them navigate this process in many ways. For those less affluent families, the abolition of the estate tax will translate into significant investment management opportunities for financial advisors.

More Competition
With a booming financial advisory business focusing on wealthy investors, coupled with changes in the tax code, one of the results is going to be a much more competitive environment for investable assets from the wealthy. Consider the elimination of the estate tax. Let us also presume the gift tax is eliminated. In this scenario, high-end life insurance agents (defined as those who provide life insurance to the wealthy to address estate taxes) find their services to be superfluous.

The arguments that federal estate taxes will reappear when the Democrats are back in power and that the wealthy can get lower rates now because they are in better health is probably accurate. Then there are always state estate taxes. However, from the perspectives of the wealthy—especially the ultra-wealthy—these and similar arguments are pretty much vaporous. Consequently, a large percentage of the wealthy will not be purchasing life insurance to pay estate taxes, or if they do, it will be at considerably lower levels, and this will have a dramatic impact on the production, profits and income of high-end life insurance agents.

By becoming financial advisors, these high-end life insurance agents will unwind or restructure the—now unneeded—life insurance policies of their high-net-worth clients, which were purchased to pay estate taxes. At the same time, a substantial number of them will embrace investment management, if they had not already done so.

With more competition, the ability of financial advisors to excel and capture a meaningful share of a larger pie of investable assets is going to rest heavily on their business development proficiencies. Not to minimize money management skills, but investment management is becoming increasingly commoditized.

The Need To Stand Out From The Crowd
With the opportunities to seriously boost assets under management, and consequently their own incomes, most financial advisors will get a limited boost from the Trump administration. With the wealthy accumulating more and becoming more numerous, and with more financial advisors “chasing” them, we are likely to see a relatively small cohort of advisors become extremely personally wealthy. Their practices are going to do amazingly well, and they will become quite affluent in their own right.

These financial advisors are going to stand apart from their competition in a number of ways. Some will stand apart because of their investment performance. However, investment performance—provided it is within an acceptable range—is not going to be the biggest differentiator.

A growing number of financial advisors will leverage investment-based advanced planning solutions. These are often products and strategies that, aside from being investment products, have additional tax or planning functions. A good example of this is private placement life insurance.
Even with lower investment taxes, private placement life insurance for many high-net-worth individuals has proved to be amazingly powerful because of the effect of tax-free compounding. Furthermore, private placement life insurance can be structured so that the affluent investor never has to pay taxes, even when monies are taken out of the policy. Furthermore, with new private placement life insurance platforms, such as CGS Financial Solutions, funding requirements have come down, and financial advisors can use their own portfolios to manage the assets in the policies.

Intensifying efforts to create strategic partnerships with non-competing professionals is another way for financial advisors to differentiate themselves from their competitors. Without a federal estate tax, for instance, the practices of most private client lawyers are going to be severely pressured. While there are certain short-term big money possibilities for them, few will take advantage of these opportunities without some guidance. Financial advisors, who can provide appropriate insights and direction, will often receive a substantial number of new wealthy investment management clients.

The key to creating any strategic partnership with a center of influence remains developing a detailed understanding of the professional’s practice. Consequently, processes such as street-smart networking are essential.

A powerful way to support these efforts is to become a thought leader—a professional who is recognized as one of the most foremost experts in his or her field (e.g., investment management) and is able to monetize that position. Not being able to convert status into revenue means that the financial advisor is not a thought leader.

Very, very few financial advisors are capable of becoming thought leaders outside a pretty small circle. That circle can be a particular industry such as divorcees or athletes, or it can be a geographic target such as a particular city—but that is usually more than enough to help create a thriving practice with wealthy investors.

For most financial advisors, the key to becoming a thought leader is not content; it’s the ability to distribute content. According to extensive research, financial advisors who become thought leaders tend to do a good amount of presentations to groups of wealthy investor prospects as well as centers of influence.

Combining approaches is proving quite effective. A good example of this is talking to private client lawyers about private placement life insurance. It’s a financial product not many of them are familiar with or know much about. When they understand private placement life insurance, after they have some experience and are educated on how their high-net-worth clients and their practices can benefit, many of them become advocates for the solution and the financial advisors who brought it to them.

The Trump administration is going to create a set of conditions in which astute, forward-thinking, capable financial advisors will shine. The financial advisors will very likely be able to grow their assets under management at a faster rate than ever before.

The complication is that the amount of competition will also increase as more and more professionals provide investment management services. There’s a very good chance this will be the case with a percentage of high-caliber life insurance agents as the need for life insurance to pay estate taxes evaporates.

The most successful financial advisors will be able to distinguish themselves from their competitors. Unless they can deliver fairly consistent exceptional investment returns, other approaches are needed. Leveraging investment-based advanced planning solutions, such as private placement life insurance, is one way. Creating strategic partnerships with centers of influence is another. Becoming a thought leader is a third way. Optimally, financial advisors would use all three approaches in concert.
 

Russ Alan Prince is president of R.A. Prince & Assoc.